TOKYO (AP) — Asian stocks largely fell Friday as rising yields in the Wall Street bond market raised expectations that high US interest rates would persist
Japanese inflation data showed that consumer prices rose 3.1% in July from a year earlier, up from 3.3% in June. But that was still above some analysts’ forecast of 2.5% and above the Bank of Japan’s target of 2%.
According to the Ministry of Interior and Communications, the core consumer price index, which takes energy and fresh food prices out of the measure, rose 4.3% year on year.
Japan’s Nikkei 225 lost 0.6% to close at 31,450.76. The Australian S&P/ASX 200 was virtually unchanged, rising less than 0.1% to 7,148.10. The South Korean Kospi fell 0.7 percent to 2,502.52 points. The Hong Kong Hang Seng fell 1.7% to 18,017.77, while the Shanghai Composite fell almost 0.7% to 3,142.10.
Investors are also thinking of what appears to be China’s shaky recovery from the negative economic effects of the coronavirus pandemic.
“As far as China is concerned, there is little cause for optimism due to gloomy macro indicators, a plunging yuan and project developers heading into troubled waters,” said Tim Waterer, chief market analyst at KCM Trade.
Wall Street fell for a third straight day, with the S&P 500 falling 33.97, or 0.8%, to 4,370.36. August is on track to be by far the worst month of the year.
The Dow Jones Industrial Average fell 290.91 points, or 0.8%, to 34,474.83, and the Nasdaq composite fell 157.70, or 1.2%, to 13,316.93.
Losses were widespread. Some of the hardest hit stocks were high-growth stocks that were considered most vulnerable to higher interest rates. Meta Platforms was down 3.1% and Tesla was down 2.8%. Apple fell 1.5% and was the heaviest weigher in the S&P 500.
Overall, stocks pulled back in August after a torrid first seven months of the year. That’s partly because a rapid rise in bond yields is forcing a reassessment of how much to pay for stocks.
The 10-year Treasury, the centerpiece of the bond market, is now yielding 4.28% after reaching its highest level since October.
If it reaches 4.34%, it will be at a level not seen since 2007, according to Tradeweb. That’s before the financial crisis and the Great Recession caused yields to collapse to record lows. The 10-year treasury yielded less than 0.70% three years ago.
Higher yields are good for bond investors, who get bigger payouts for their investments. But it hurts stock prices because investors are suddenly less inclined to pay high prices for investments that aren’t as stable as bonds.
Higher yields also mean borrowers have to pay more to get cash, which can curtail corporate profits and cause unforeseen events to break into the system, such as the three high-profile US bank failures that rocked markets this spring.
Home buyers are feeling the sting. The average interest rate on a 30-year mortgage reached its highest level in more than 20 years this week.
Yields have risen as more reports show that the US economy remains remarkably resilient. On a positive note for markets, the data means the economy has been able to avoid a long-predicted recession. But on the other hand, it can also keep upward pressure on inflation. That would be reason for the Federal Reserve to keep interest rates high for longer.
On Thursday, more data came in showing a robust US economy.
Last week, fewer workers applied for unemployment benefits than economists had expected. It is the latest signal that the labor market remains solid.
A survey of mid-Atlantic manufacturers also showed unexpected growth, while economists expected another month of contraction. Manufacturing is one of the areas of the economy hardest hit by much higher interest rates.
“The labor market remains resilient — perhaps too resilient for the Fed’s liking,” said Mike Loewengart, chief model portfolio construction at Morgan Stanley Global Investment Office.
Other strong economic data of recent times, including a report showing an acceleration in US retail sales growth, mean the Fed could raise rates again at some point, he said. Hopes grew on Wall Street that the Fed would be ready after last month raising its base rate to the highest level in more than two decades.
Traders had also been hoping that the Fed would start cutting rates early next year. Such a move would be a relief to markets, as high rates work to lower inflation by slowing down the whole economy and hurting prices for investments.
Inflation has cooled considerably since peaking above 9% last summer. But consumers still paid prices that were 3.2% higher in July than a year earlier, and economists say the final stretch to bring inflation back to the Fed’s 2% target will prove to be the most difficult.
A stronger economy would use more fuel, and oil prices rose Thursday to recover some of their decline from earlier in the week. That helped propel energy producer stocks to some of the rare gains within the S&P 500. Exxon Mobil rose 1.9% and ConocoPhillips gained 1.8%.
In energy trading on Friday, benchmark US crude oil gained 22 cents to $80.61 a barrel. Brent oil, the international standard, rose 5 cents to $84.17 a barrel.
In currency trading, the US dollar fell to 145.23 yen from 145.83 yen. The euro was priced at $1.0889, up from $1.0873.
