Asian shares tracked Wall Street lower on Friday, while the dollar held on to its overnight gains, after rate hike guidance from the European Central Bank and upcoming U.S. inflation data unnerved investors.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.2% in early Asian trade, weighed down by drops of 1.5% in Hong Kong, 0.8% in resources-heavy Australia and 1.6% in South Korea.
Japan’s Nikkei fell 1.2%.
Tech giants listed in Hong Kong were hit hard, with their sub-index opening 2.9% lower. Hong Kong shares of Alibaba fell 3.3% after affiliate Ant Group said it had no plan to initiate an initial public offering. This was a response to media reports that Beijing had approved relaunching the IPO.
Alibaba shares in the U.S. slid 8.1% overnight.
Market sentiment in China has been soured by renewed restrictions in Beijing and Shanghai as new COVID-19 cases have emerged. Multiple districts in Beijing are shutting down entertainment venues, while most citizens in Shanghai are facing new rounds of mass testing to prevent a new outbreak.
On Thursday, the European Central Bank ended a long-running stimulus scheme and said it would deliver next month its first interest rate rise since 2011, followed by a potentially larger move in September.
While the ECB decision was widely expected, the possibility of a larger rise in September weighed on sentiment. The euro zone economy is grappling with slowing growth and soaring inflation exacerbated by a months-long Ukraine war.
“Global equities came under pressure after the ECB delivered its guidance, and (ECB President Christine) Lagarde noted upside inflation risks,” said analysts at ANZ in a note on Friday.
“And with energy prices still pushing higher, it is not yet clear that inflation has peaked. Fed guidance and policy actions may have to turn more hawkish for longer. Financial markets are nervous.”
For months, markets have focused on how fast central banks have been moving to curb inflation. Investors now expect the Federal Reserve to raise interest rates by 50 basis points next week, especially if U.S. consumer price data on Friday confirms elevated inflation.
The consensus forecast sees a year-over-year inflation rate for May of 8.3%, unchanged from April.
Shares on Wall Street tumbled as the market awaited the price data. The S&P 500 and Nasdaq fell more than 2% in their biggest daily percentage declines since mid-May, with mega-cap growth stocks leading the way.
Apple Inc and Amazon.com Inc fell 3.6% and 4.2%, respectively.
While some investors have been hopeful that inflation may have peaked, a recent run higher in oil prices to a 13-week high has dented that optimism, boosting the appeal of the safe-haven dollar.
In currency markets, the U.S. dollar retained its broad strength against a basket of major currencies, hovering around its highest level in three weeks. The euro wallowed at a 2-1/2 week low while the yen gained 0.16% against the greenback, pulling away from a 20-year low.
On Friday, moves in U.S. Treasuries were largely muted. The yield on benchmark 10-year Treasury notes rose slightly to 3.0566%, compared with its U.S. close of 3.042% on Thursday.
The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 2.8319%, compared with a U.S. close of 2.817%.
Oil prices dipped after parts of Shanghai imposed new lockdown measures. Still, strong gains in refined products supported crude prices near three-month highs.
U.S. crude futures fell 0.16% to $ 121.33 a barrel and Brent settled 0.2% lower at $ 122.81.
Gold edged down on Friday and headed for a weekly fall, as Treasury yields rose. Spot gold was traded at $ 1,846.4949 per ounce.
