Asian Stocks Down as Powell Intensifies Fight Against Inflation

Asia Pacific stocks were down on Friday morning, with U.S. Federal Reserve Chairman Jerome Powell toughening his stance on inflation. Investors are now bracing for more aggressive monetary policy tightening.

Japan’s Nikkei 225 slid 1.96% by 10:01 PM ET (2:02 AM GMT). Data released earlier in the day showed that the consumer price index (CPI) n.s.a. grew 0.4% month-on-month, the national core CPI grew 0.8% year-on-year, and the national CPI grew 1.2% year-on-year in March 2022. The manufacturing purchasing managers index (PMI) for April was 53.4 and Japan also released its services PMI.

South Korea’s KOSPI fell 1.05% and in Australia, the ASX 200 fell 1.74%.

Hong Kong’s Hang Seng Index fell 1.27%.

China’s Shanghai Composite inched down 0.08% and the Shenzhen Component was down 0.75%.

Shorter maturities paced a renewed fall in Treasuries, with markets betting on three consecutive half-point Fed interest-rate hikes, which would be the sharpest tightening since 1982.  Powell also indicated increases in such increments are possible, while finding merit in the idea of “front-end loading” moves.

A portion of the U.S. Treasury yield curve inverted again, while bonds in Australia and New Zealand also fell. Oil remained above $103 a barrel, as supply disruptions from the war in Ukraine precipitated by the Russian invasion on Feb. 24 continue to elevate energy costs. Higher costs countered fuel demand concerns over ongoing COVID-19 lockdowns in China.

Efforts by central banks to curb the highest inflation in a generation are also dimming investor sentiment, increasing market volatility, and eclipsing an earnings season that has had a strong start.

“Equities are really torn between these two forces right now and the first one is that earnings are actually pretty good,” iCapital Securities LLC chief investment strategist Anastasia Amoroso told Bloomberg.

But “anytime equities rally it seems like the Fed officials are coming in with more and more hawkish talk,” she added.

Meanwhile, around 80% of U.S. firms reported better-than-expected earnings. Among these was Tesla Inc. (NASDAQ:TSLA), whose stocks rose after the company posted record profits. Tesla CEO Elon Musk is also preparing funds for his Twitter Inc . (NYSE:TWTR) takeover bid.

In the Asia Pacific region, there was more uncertainty for Didi Global Inc. (NYSE:DIDI) Senior Chinese officials are pushing back on proposed punishments for the ride-hailing company as it prepares to delist from the New York Stock Exchange, and regulatory concerns saw the Nasdaq Golden Dragon China Index slump on Thursday.

Attempts by the government to calm fears by pledging stability have had limited success. The China Securities Regulatory Commission said in a statement that it held a meeting Thursday with institutional investors including the National Social Security Fund, banks, and insurers, where it asked them to increase their equity investments.

Investors now await manufacturing PMIs from the eurozone, France, Germany and the U.K., all due later in the day.