Asian stocks retreat amid US, China CPI jitters

Investing.com-- Most Asian stocks fell on Thursday, tracking overnight declines on Wall Street after hotter-than-expected U.S. inflation eroded bets on early interest rate cuts by the Federal Reserve.

Inflation data from China also showed Asia’s largest economy remained stuck in a sustained deflationary trend, further denting sentiment. 

Wall Street indexes fell in overnight trade after hotter-than-expected consumer price index (CPI) inflation data saw traders largely scale back bets on a June rate cut by the Fed.

U.S. stock index futures fell in Asian trade. 

Chinese stocks fall after CPI shrinks more than expected in March

Weak Chinese inflation data also rattled regional markets. China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes fell 0.2% and 0.4%, respectively, after data showed Chinese CPI inflation shrank more than expected in March.

A sustained decline in PPI inflation also indicated little signs of economic recovery in China, which has been struggling with a sustained deflationary trend over the past year. 

Weakness in China bodes poorly for broader Asian economies, given that they rely on the country as a major trading partner. 

Losses in mainland stocks dragged Hong Kong’s Hang Seng index down 1.4%, largely reversing gains made on Wednesday on the back of a rally in technology stocks. 

Australia’s ASX 200 fell 0.8% as recent gains in commodity prices provided only a limited boost to heavyweight mining stocks. Concerns over China also weighed on Australian stocks, given their heavy exposure to the mainland. 

Japan’s Nikkei 225 index fell 0.6%, while the TOPIX lost 0.3%. Bigger losses in Japanese stocks were limited by strength in major exporters, as the Japanese yen tumbled to 34-year lows.

But uncertainty over potential government intervention to support the yen also dented sentiment towards Japanese markets.

South Korea’s KOSPI fell 0.4%, while Indian markets were closed for a holiday. Still, the Nifty 50 hit a record high on Wednesday.

June rate cut bets evaporate 

Other Asian markets also retreated on Thursday, dented by the prospect of higher-for-longer U.S. interest rates.

Sentiment towards risk-driven markets was largely battered by the strong U.S. CPI data. The reading, coupled with hawkish minutes from the Fed’s March meeting, saw markets slash expectations for a 25 basis point rate cut in June. The minutes showed that even before the hot CPI reading for March, Fed officials were already growing concerned with sticky inflation.

The CME Fedwatch tool showed markets were now pricing in an over 80% chance for a hold in June, and 17.5% chance of a rate cut.