Asian stock markets declined on Friday after U.S. inflation edged higher, fueling unease about the outlook for the biggest global economy¹. The U.S. consumer price index rose 0.3% in August from the previous month, slightly lower than expected, but still above the Federal Reserve's 2% target¹. The annual inflation rate was 5.3%, unchanged from July¹.
The inflation data added to the uncertainty about when the Fed will start to taper its bond-buying program, which has been supporting the economic recovery from the pandemic. Some investors fear that higher inflation could force the Fed to raise interest rates sooner than anticipated, which could hurt growth and corporate profits¹.
China's regulatory crackdown weighs on sentiment
Meanwhile, China's regulatory crackdown on various sectors continued to weigh on market sentiment, as investors worried about the impact on business activity and innovation. China's Shanghai Composite Index fell 0.37% on Friday, while Hong Kong's Hang Seng Index dropped 1.46%².
China has been tightening its oversight of industries ranging from technology and education to gaming and entertainment, citing national security, social welfare and antitrust concerns. The moves have triggered a sell-off in Chinese stocks, especially those listed in the U.S., as well as foreign investors' withdrawal of funds from China's markets³.
Asian markets mixed ahead of US inflation update
On Tuesday, Asian stock markets followed Wall Street higher ahead of an update on U.S. consumer prices that traders hoped would show inflation is easing, reducing the need for more interest rate hikes⁴. Shanghai, Tokyo, Hong Kong and Sydney advanced⁴.
Investors were looking for signs that the U.S. inflation pressure was cooling down after a surge in the first half of the year, driven by higher commodity prices, supply chain bottlenecks and pent-up demand. A lower-than-expected inflation reading could ease fears that the Fed would tighten its monetary policy too quickly and derail the economic recovery⁴.
Asian stock markets overview
According to CNN Business, Asian markets finished broadly lower on Friday with shares in Hong Kong leading the region. The Hang Seng was down 1.46% while Japan's Nikkei 225 was off 1.11% and China's Shanghai Composite was lower by 0.37%². On Tuesday, Asian markets were mostly higher with Japan's Nikkei 225 up 0.18%, Hong Kong's Hang Seng up 0.83% and China's Shanghai Composite up 0.16%².
The performance of Asian stock markets reflects the mixed signals from the global economy, as well as the diverging policies and challenges faced by different countries in the region. While some Asian economies have been recovering strongly from the pandemic, others have been struggling with new outbreaks and lockdowns. Moreover, geopolitical tensions, trade disputes and environmental issues have also added to the uncertainty and volatility in the markets⁵.