By ELAINE KURTENBACH, AP Business Writer
BANGKOK (AP) — Stocks were mostly down on Friday in Asia after a selloff on Wall Street spurred by news that U.S. inflation jumped 7.5% in January, raising expectations that the Federal Reserve will have to act forcefully to cool the economy by raising interest rates.
The highest inflation reading since 1982 sent the S&P 500 down 1.8%. Treasury yields jumped as traders bet the Fed may have to rein in the economy with a bigger-than-usual interest rate hike next month. The 10-year Treasury yield topped 2% for the first time since August 2019, according to Tradeweb.
The reaction in Asia was more subdued. Hong Kong’s Hang Seng was unchanged at 24,920.85 while in Sydney, the S&P/ASX 200 fell 0.6% to 7,245.60. The Kospi in Seoul fell 0.3% to 2,763.80. Shanghai gained 0.3% to 3,497.71. In Tokyo, markets were closed for a holiday.
The muted initial reactions outside the US suggest that “markets may want to look to economic data to guide expectations, given that we have seen many central banks reverse their stance on inflation.” , IG’s Jun Rong Yeap said in a comment.
“We will get inflation readings from China next week which will be one to watch given its impact on global prices,” he said.
Trading has been volatile this year, with investors wondering how quickly and to what extent the Fed will raise interest rates to rein in soaring inflation. The benchmark S&P 500 index has fallen in three of the past five weeks and now sits 6.1% below the all-time high it hit on Jan. 3.
The S&P 500 fell 83.10 points to 4,504.08, with more than 85% of its shares ending lower after another day of sharp swings. The Dow Jones Industrial Average fell 1.5% to 35,241.59 and the Nasdaq composite slipped 2.1% to 14,185.64.
The Russell 2000 Small Cap Index fell 1.6% to 2,051.16.
Inflation piled up as the economy recovered from the pandemic. Supply shortages and problems in global supply chains have also pushed inflation higher, and prices at the consumer level rose 7.5% last month from a year earlier. .
A separate report also said fewer workers filed for unemployment last week than expected. This is encouraging for workers, but could add upward pressure on inflation.
The strength of the labor market and high inflation have forced the Federal Reserve to start cutting the massive aid it has provided to financial markets throughout the pandemic. Rising interest rates could help curb inflation, but would also put downward pressure on all kinds of investments, from stocks to cryptocurrencies.
In the bond market, yields jumped the most for shorter-term Treasuries. The two-year yield jumped to 1.62% from 1.36% on Wednesday night. This rate tends to follow expectations about what the Fed will do.
The 10-year yield also rose from 1.93% to 2.05%. It was at 2.03% early Friday.
“The fixed income market itself flirted and really tried to break through that 2% psychological level, and it did today,” said Megan Horneman, director of portfolio strategy at Verdence. Capital Advisors.
The Walt Disney Co. jumped 3.3% for the S&P 500’s biggest gain after reporting a rebound in theme park attendance last quarter and saying it added more subscribers to its Disney+ streaming service than expected by analysts. Its earnings and revenue for the last quarter beat Wall Street forecasts.
Coca-Cola rose 0.6% after reporting higher-than-expected earnings for the last quarter.
If companies can keep increasing their earnings, their stock prices could continue to rise even as higher interest rates limit the amount equity investors are willing to pay for every dollar of earnings.
That’s why one of the big questions on Wall Street is how companies will deal with the rising inflation that is sweeping the world.
In other trading, the benchmark U.S. crude lost 9 cents to $89.79 a barrel in electronic trading on the New York Mercantile Exchange. It took 22 cents to $89.88 a barrel on Thursday.
Brent crude, the price base for international oils, fell 19 cents to $91.23 a barrel.
The dollar fell from 116.02 yen to 116.13 Japanese yen. The euro slipped to $1.1382 from $1.1430.
AP Business Writers Damian J. Troise, Alex Veiga and Stan Choe contributed.
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