Stock rally fizzles on revived inflation fears

Employees of the currency trading company Gaitame.com work in front of monitors showing the exchange rate of the Japanese yen against the US dollar, the euro and the average of Nikkei shares in its trading room in Tokyo, Japan, June 22, 2022. REUTERS/Issei Kato

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TOKYO, June 22 (Reuters) – Asian stocks tumbled on Wednesday, failing to extend Wall Street’s rally as lingering concerns over interest rates and inflation remained front and center for investors, while the Japanese yen hit a new 24-year low against the dollar.

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 1.39%, still up 1.02% from the more than five-week low it hit on Monday. . The Tokyo Nikkei (.N225) gave up early gains and were flat.

Investors continue to assess how worried they should be about central banks pushing the global economy into recession as they try to rein in searing inflation with interest rate hikes.

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Major U.S. equity benchmarks rose 2% overnight on the possibility that the economic outlook might not be as dire as expected in trade last week when the S&P 500 (.SPX) recorded its strongest weekly percentage decline since March 2020.

But the rally in sentiment didn’t last long with S&P 500 and Nasdaq futures both down almost 1% on Wednesday, while EUROSTOXX 50 futures lost 1.3% and futures FTSE futures lost 0.9%.

“I think this recent post-holiday bear market rally is a reflection of investor uncertainty over whether or not we’ve seen the spike in inflation and the ferocity of the Fed – I think we’re close.” , said Invesco’s global market strategist for Asia-Pacific David Chao.

“While I suspect global equity markets could end the year higher than today, it is conceivable to expect continued market volatility until it becomes clear that the Fed is not going to force the US economy to contract in order to reduce persistent levels of inflation.”

Chinese blue chips (.CSI300) lost 0.44%, Hong Kong’s Hang Seng Index (.HSI) fell 1.24% and South Korea’s KOSPI (.KS11) fell 1.82 %.

U.S. Federal Reserve Chairman Jerome Powell is due to begin testimony before Congress on Wednesday with investors looking for further clues about whether another 75 basis point rate hike is expected in July.

Economists polled by Reuters expect the Fed to hike interest rates by 75 basis points next month, followed by a half-percentage point hike in September, and not back not to quarter-point moves until November at the earliest. Read more

Most other global central banks are in a similar situation, with the exception of the Bank of Japan, which last week pledged to maintain its ultra-low interest rate policy.

The spread between low interest rates in Japan and rising US rates weighed on the yen, which hit a fresh 24-year low of 136.71 to the dollar in early trading, before firming at 136.25.

Minutes of the Bank of Japan’s April policy meeting released on Wednesday showed the central bank’s concerns about the impact the falling currency could have on the country’s business environment. Read more

Other currency movements were more subdued on Wednesday, with the dollar index, which trails the greenback against six peers, a bit firmer at 104.62.

The yield on the benchmark 10-year US Treasuries remained relatively stable at 3.2617%.

Oil prices have fallen and U.S. President Joe Biden is expected to call on Wednesday for a temporary suspension of the 18.4-cent-a-gallon federal tax on gasoline, a source briefed on the plan told Reuters.

Brent fell 3.37% to $110.79 a barrel, while U.S. crude fell 3.71% to $105.46.

Spot gold fell 0.32%, trading at $1,826.72 an ounce.

Bitcoin is down 6.54% from its Tuesday high, trading at $20,288 after falling to $17,592 last week.

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Reporting by Sam Byford in Tokyo; Editing by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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