Bears hold the reins amid inflation and growing pains

  • Asia-Pacific stocks remain under pressure amid firmer inflation data, pessimistic growth forecasts and central bank inaction.
  • Japan and Australia publish high inflation figures, the IMF reduces growth prospects in Asia.
  • The BOJ defends the status quo despite the upward revision of inflation forecasts.

Asian stocks hold lower ground while trailing global indices as fears surrounding inflation and growth prevail early Friday.

While depicting the mood, the MSCI index of Asia-Pacific shares ex-Japan falls almost 1.0% as the bears attack the lowest levels since March 2020, while the Japanese Nikkei 225 loses 0.73 % intraday before the European session. It should be noted, however, that low yields previously favored equity buyers, but the hawkish ECB and strong US gross domestic product (GDP) drowned equities thereafter.

Inflation data from Tokyo, high for 33 years, joined Australia’s strong producer price index (PPI) to keep bears hopeful as the International Monetary Fund (IMF) cut economic forecasts by Asia. The IMF downgraded Asia’s economic forecast on Friday as global monetary tightening, rising inflation blamed on the war in Ukraine and a sharp slowdown in China dimmed prospects for a recovery in the economy. region,” Reuters said. The news also adds that the IMF cut Asia’s growth forecast to 4.0% this year and 4.3% next year, down 0.9% and 0.8 points from April, respectively. The slowdown follows a 6.5% expansion in 2021. Further details suggest the Washington-based institute expects China’s growth to slow to 3.2% this year, a drop from 1.2 points from its April projection, after rising 8.1% in 2021. The second-largest economy is expected to grow 4.4% next year and 4.5% in 2024, a said the IMF according to Reuters.

On a broader front, Thursday’s U.S. data weighed on Fed bets even as U.S. gross domestic product (GDP) rose 2.6% on an annualized basis, more than expected, in the third quarter ( T3). The reason may have to do with a fifth straight decline in private consumption that defied Fed hawks as it showed policymakers are gradually closing in on the target of slowing private domestic demand, which could at in turn favor easy talks on December rate hikes over the next few years. Federal Open Market Committee (FOMC) meeting of the week.

That said, low US Treasury yields and risk aversion could also be blamed for poor Asia-Pacific market conditions. That said, the US Dollar Index (DXY) is falling to 110.50, following Thursday’s rally from the five-week low, while commodities are slightly red amid market indecision.

Subsequently, the US Core PCE price index for September, which is expected to come in at 5.2% vs. 4.9% previously, will be crucial for traders to watch for clear guidance. A firmer impression of the Fed’s preferred inflation gauge could bolster yields and Fed hawkish bets, which in turn will be supportive for risk assets ahead of next week’s FOMC.

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