Asian markets fret over COVID, interest rates

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Asian markets fret over COVID, interest rates

TOKYO - Asian shares fell Thursday, echoing a retreat on Wall Street as investors fretted about higher interest rates and rising coronaviruses cases in parts of the region.

Japan's benchmark Nikkei 225 NIK, lost 0.2%, and Australia's S&P ASX 200 XJO, was down 1%. South Korea's Kospi 180721, slipped 1%. The Hang Seng HSI in Hong Kong fell 1.7%, while the Shanghai Composite SHCOMP fell 0.1%. In Indonesia JAKIDX but declined in Singapore STI, Taiwan Y 9999 and Malaysia FBMKLCI, strict COVID 19 restrictions are back in Hong Kong as infections increase, while they are gradually being lifted in Shanghai. China has stuck to a zero-COVID strategy that requires lockdowns, mass testing and isolation for those infected or who have been in contact with someone testing positive.

The dampened mood in Wall Street may not provide much positive backdrop for the Asia session today, with the U.S. listed Chinese stocks falling in tandem with their Western counterparts overnight, said Yeap Jun Rong, market strategist at IG in Singapore.

After the release of several reports about the U.S. economy, stocks began to slide immediately, including one showing manufacturing growth was stronger than expected. That boosted investor expectations for the Federal Reserve to raise interest rates aggressively to slow the economy in hopes of reining in inflation.

Sam Stovall, chief investment strategist at CFRA, said investors are worried about the Fed meeting coming up, and that because inflation is expected to remain stubbornly elevated, the Fed probably won't get away with front-end loading the rate tightening cycle and then pausing in the fall.

The S&P 500 SPX fell by 0.7% to 4,101. The Dow Jones Industrial Average DJIA gave up 0.5% to 32,813. The Nasdaq Composite COMP slid by 0.7% to 11,994. Smaller company stocks lost ground.

On Wall Street, daily market swings have become routine because of worries that too-aggressive rate hikes by the Fed could cause the economy to go into a recession. Even if it can't choke off the economy, higher rates put downward pressure on stocks and other investments. High inflation is weighing on corporate profits while the war in Ukraine and business-slowing anti-COVID 19 restrictions in China have also weighed on markets.

The Fed is signalling that it may increase its key short-term interest rate by double the usual amount at upcoming meetings in June and July. Speculation last week was made that the Fed might consider a pause at its September meeting, which helped stocks to rise. Such hopes fell after Wednesday s manufacturing report from the Institute for Supply Management.

The U.S. manufacturing growth accelerated last month, contrary to economists' expectations for a slowdown. In April, the number of job openings across the economy fell a bit, but remains much higher, at 11.4 million, than the number of unemployed people, according to a separate report.

Wednesday was the beginning of the Fed's program to sever trillions of dollars of Treasurys and other bonds that it had amassed through the Pandemic. The move should put upward pressure on longer-term rates.

The 10 year Treasury yield rose to 2.92% from 2.84% just before the report's release.

The benchmark U.S. crude CLN22 lost $2.82 to $112.44 a barrel early Thursday. It rose by 0.5% to settle at $115.26 on Wednesday. Brent crude BRNQ 22, the international standard, dropped $2.21 to $114.08 a barrel.

The US dollar dropped to 130.10 Japanese yen from 130.15 yen in currency trading.