Asia stocks stifled by inflation, rising interest rates and China concerns

By Scott Murdoch

HONG KONG (Reuters) - Asian stocks weakened on Monday as investors worried inflation and rising interest rates would hamper the global economic outlook and China's COVID-19 situation weighed on sentiment, with tech firms particularly hit.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.3% as the region's major markets traded in the red. Oil rose and gold extended its recent gains.

However, U.S. and European markets appeared to shrug off the gloomy Asian mood with the pan-region Euro Stoxx 50 futures up 1.35%, German DAX futures 1.4% higher and FTSE futures climbing 0.83%. S&P 500 futures rose 1.04%.

Australian shares reversed early gains to be down 0.13% on Monday while Japan's Nikkei stock index bucked the regional trend and was 0.7% higher.

A negative tone was evident as Hong Kong's Hang Seng Index slid 1.27% and the mainland's CSI300 Index dropped 0.7%, weighed by the tech sector. The Hang Seng Tech Index dropped 2.2% and is down 26.5% so far this year.

"The sell off in Asia is primarily driven by the negative global sentiment that exists at the moment," Jack Siu, Credit Suisse's greater China chief investment officer, told Reuters.

China's tech sector, he added, would remain volatile until there was greater regulatory clarity and U.S markets stabilised.

Daily COVID-19 numbers in China remain closely watched by investors and Beijing on Monday reported 99 new infections for the previous day, the largest daily tally so far during a month-old outbreak.

The decline in China's markets on Monday came after a surprisingly strong end to last week, when Hong Kong and mainland markets gained between nearly 2% and 3%.

There were $2.13 billion of net inflows to mainland stocks on Friday by foreign investors, the highest in 2022, according to stock exchange data.

In foreign exchange, the dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down 0.35% at 102.63.

Benchmark 10-year Treasury yields rose to 2.8207% from its U.S. close of 2.787% on Friday.

The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 2.6266%, up from 2.583%.

Inflationary pressures remain top of mind for investors, given German wholesale inflation figures published on Friday showed a higher than expected jump indicating prices will remain elevated in the short-term.

In Australia, the Labor Party won a general election on the weekend, ending a near 10-year rule by their conservative rivals.

While Labor has promised climate, housing and enhanced social welfare reforms, analysts do not believe the change in government will create major implications for the economy.

"In our view there was little proposed by the incoming government during the election campaign that at this stage requires us to revisit our economic forecasts," CBA economists wrote on Monday.

"Put another way, our economic forecasts and call on the RBA are unchanged despite the change of national leadership."

The dollar weakened 0.24% against the yen to 127.54 after initially gaining ground. It is still some distance from this year's high of 131.34, hit on May 9.

U.S. crude gained 0.64% to $110.24 a barrel. Brent crude rose 0.9% to $112.68 per barrel.

The concerns over global economic growth have prompted renewed support for gold.

"Gold prices saw the first weekly gain since mid-April as safe-haven demand was boosted by concerns over economic growth amid high inflation," ANZ analysts said in a research note on Monday. "A weaker U.S. dollar has also boosted investor appetite."

Spot gold was 0.3% higher early Monday at $1854.9 per ounce. [GOL/]

 

(Editing by Sam Holmes)