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Asian markets follow Wall St lower on inflation worries

BANGKOK (AP) – Shares declined in Asia yesterday after a retreat on Wall Street driven by fears that strong economic data will lead the Federal Reserve to double down on its interest rate hikes to tame inflation.

Shanghai was flat while other major indexes declined. United States (US) futures edged higher and oil prices rose. Trading was winding down with the approach of the festive season and New Year holidays.

Japan reported its core inflation rate, excluding volatile fresh foods, rose to 3.7 per cent in November, the highest level since 1981, as surging costs for oil and other commodities added to upward price pressures in the world’s third-largest economy.

While the rate was much lower than in the US and most major European and emerging economies, it adds to pressure on the Bank of Japan (BOJ) to adjust its own policies that have kept interest rates ultra-low to spur growth. For Japan, deflation – falling prices – rather than inflation has been the key concern for most of the past few decades. Recession in coming months remains the greater concern, economists say.

“Inflation edged up in November and will peak at around four per cent around the turn of the year, but we expect it to fall back below the Bank of Japan’s two per cent target by mid-2023,” Capital Economics economist Marcel Thieliant said in a report.

The Fed has already hiked its key overnight rate to its highest level in 15 years. It began the year at a record low of near zero. Many economists and investors expect a recession to hit the US economy in 2023.

A currency trader walks by the screens showing the Korea Composite Stock Price Index and the foreign exchange rate between US dollar and South Korean won at a foreign exchange dealing room. PHOTO: AP

Tokyo’s Nikkei 225 index lost one per cent to 26,235.25 and the Hang Seng in Hong Kong shed 0.4 per cent to 19,602.11. The Shanghai Composite index dropped 0.4 per cent to 3,043.56 and Australia’s S&P/ASX 200 declined 0.6 per cent to 7,107.70.

In Seoul, the Kospi dropped 1.8 per cent to 2,313.69. Shares also fell in Bangkok, Mumbai and Taiwan.

Good economic data should be positive for markets when recession may be looming, but the reports on Thursday suggested the Federal Reserve may need to keep hiking interest rates and keep them high to curb inflation.

The Fed is particularly worried about a still-strong job market giving more oxygen to inflation, which has eased a bit in recent months but is still near the highest level in decades.

A report on Thursday said employers laid off fewer workers last week than expected.

Another report showed that the broad US economy expanded at a more robust pace during the summer than earlier estimated.

The S&P 500 fell 1.4 per cent on Thursday after having been down as much as 2.9 per cent earlier in the day. It closed at 3,822.39. The pullback brings Wall Street’s main measure of health back to a loss of nearly 20 per cent for the year.

The Dow Jones Industrial Average fell one per cent to 33,027.49 and the Nasdaq closed 2.2 per cent lower, at 10,476.12. The Russell 2000 index dropped 1.3 per cent to 1,754.09.

The selling was broad, with all 11 industry sectors in the S&P 500 ending up in the red.

Technology stocks were the biggest drag on the benchmark index. Chipmaker Nvidia slumped seven per cent.