Asian Markets Fall as Investors Digest U.S. Inflation Data

The S&P 500 edged lower after data showed U.S. inflation cooled, but remained hot enough to keep the Federal Reserve on track for further interest-rate increases.

The S&P 500 ended down by less than 0.1%, erasing earlier gains, while the tech-heavy Nasdaq Composite rose 0.6% and the Dow Jones Industrial Average lost 0.5%.

The U.S. consumer-price index showed annual inflation cooled for the seventh straight month to 6.4% last month, according to Labor Department data released Tuesday. Still, the reading came in slightly above what economists surveyed by The Wall Street Journal had expected. Inflation also increased in January from a month earlier, in large part due to rising costs for shelter.

The data make it likely the Fed will not only raise interest rates in March, as was widely anticipated, but also point to the need for further rate increases in the following months. Hopes that the Fed would be able to pause after their March meeting had helped stocks rally to start the year.

“The strength of core inflation suggests that the Fed has a lot more work to do to bring inflation back to 2%,” said Maria Vassalou, co-chief investment officer of multi-asset solutions at Goldman Sachs Asset Management, in emailed comments. Vassalou added that she would be watching Wednesday’s retail sales report to see if the economy remains hot enough that the Fed may have to bring rates even higher than they currently anticipate.

 ASIAN STOCKS

Japanese stocks edged lower in midmorning trade, with the Nikkei Stock Average down 0.1% at 27587.58. Earnings are in focus, with Sapporo Holdings scheduled to announce its results later in the day.

South Korea’s benchmark Kospi was down 0.5% at 2452.70 in early trade, dragged by internet and financial stocks. Growth stocks retreated after U.S. inflation eased a bit in January but remained higher than expected, which could warrant a prolonged period of the Fed’s policy tightening. South Korea’s slowing jobs growth also damped sentiment. Foreign and institutional investors were net sellers. USD/KRW was 0.4% higher at 1,274.55.

Hong Kong’s benchmark Hang Seng Index was flat at 21116.84 in early trade, after data overnight showed U.S. inflation cooled, but remained high enough to keep the Fed on track for more interest-rate increases. China’s central bank kept its key policy rates unchanged earlier today, suggesting a hold on benchmark lending rates later this month. The Hang Seng Tech Index was up 0.3%.

Chinese shares were little changed in early trade as rangebound trading continued. The benchmark Shanghai Composite Index was flat at 3293.34, the Shenzhen Composite Index edged 0.1% higher to 2190.45 and the ChiNext Price Index was flat at 2565.72. CATL gained 1.3% following news that Ford Motor is investing $3.5 billion to build a battery plant in Michigan with help from the Chinese battery maker. Meanwhile, China’s central bank has kept its key policy rates unchanged today, which suggests a hold on benchmark lending rates later this month.

FOREX

The yen strengthend against other G-10 and Asian currencies amid risk-off sentiment sparked by U.S. CPI data released overnight. The stronger-than-expected data have sent jitters to market participants, Tina Teng, markets analyst at CMC Markets, said in an email, noting that January headline inflation was 6.4% on year, higher than an estimated 6.2%. The resurgent inflation is certainly not good news for global markets, Teng added. USD/JPY fell 0.3% to 132.71, AUD/JPY dropped 0.6% to 92.47 and EUR/JPY lost 0.4% to 142.44.

METALS

Gold was steady in the early Asian session, supported by potential safe-haven demand amid ongoing tensions between U.S. and China over suspected spy balloons. The precious metal appears to be performing better than most risky assets, which could possibly be due to some safe-haven flows, said Edward Moya, senior market analyst at Oanda, in an email. Spot gold was little changed at $1,855.16/oz.

OIL SUMMARY

Oil declined in the morning Asian session, weighed by a big increase in U.S. oil supplies. The market has continued to trade weaker this morning after bearish American Petroleum Institute data showed U.S. inventories increasing across the board last week, said ING commodities strategists in a research report. The API said U.S. commercial inventories of crude oil rose last week by a very large 10.5 million barrels, a source citing the data said. Front-month WTI crude oil futures were 0.3% lower at $78.84/bbl; front-month Brent crude oil futures fell 0.3% to $85.35/bbl.