Inflation Data Ignites Rate Fears
A wave of selling hit Asian equity markets on Thursday, with technology companies enduring a fresh bout of heavy losses. The trigger was US inflation data that came in above expectations, strengthening the view that the Federal Reserve will need to push borrowing costs higher. Seoul and Tokyo were hit hardest as investors dumped chipmakers that had long dominated their markets, although declines were widespread across the region after Wall Street's steep falls. Sentiment was already fragile over the future of the AI investment boom, and the September consumer price index reading of 3.7 percent — above the 3.6 percent consensus and well up on the prior month — made things worse.[S1][S2]
That figure marked a five-month high, with energy costs doing most of the damage after the Iran war led Tehran to effectively block the Strait of Hormuz, a chokepoint for roughly one-fifth of the world's crude. Petrol prices alone were responsible for over half the monthly rise in the CPI, climbing 9.1 percent during September. The data leaves the Fed under pressure to deliver at least one more increase following its September move, with its next decision scheduled for October 28, just a week ahead of the US midterm elections.[S1]
Market Bets Reprice for Faster Fed Action
Traders quickly raised their wagers on a second consecutive increase once the numbers landed. CME Group's FedWatch tool put the odds of a 25-basis-point move this month at 37.1 percent, up from roughly 22 percent beforehand. Saxo Markets' Neil Wilson described the CPI report as a problem for the Fed, which had appeared inclined to hold steady in October, noting that several board members had voiced support for a slower approach to gauge the impact of September's hike. He said markets had essentially ruled out a move this month but adjusted for a somewhat faster Fed path after inflation ran a touch hotter than anticipated.[S1]
Chris Weston of Pepperstone noted that fresh signs of upside inflation risk in the US had bolstered the case for rates staying elevated for longer, prompting sellers to emerge across risk assets and renewing pressure on rate-sensitive equities. In his view, the spread of price increases throughout the CPI basket was especially troubling, undercutting a market that badly needs proof of disinflation. He also said a December increase is now essentially fully discounted, with a 66 percent chance attached to a January move.[S1]
Tech and Chipmakers Lead the Sell-Off
Technology companies, which depend on borrowed money to finance their enormous AI spending, drove Thursday's declines, mirroring the falls seen in New York. Seoul's Kospi tumbled eight percent, triggering a short trading halt, as SK hynix dropped over 11 percent and Samsung more than 10 percent. Tokyo's Nikkei 225 lost more than five percent, with Kioxia down over 11 percent and Advantest off 14.5 percent. SoftBank, a major tech investor, fell 9.5 percent. Taipei slipped more than three percent as index heavyweight TSMC shed 2.2 percent.[S1][S4][S5][S6]
The slump followed a period in which many tech firms had recovered part of the steep losses from a summer sell-off driven by worries over stretched valuations and uncertainty about when their massive investments would pay off. Hong Kong, Shanghai, Singapore, Bangkok and Jakarta all fell sharply, while Wellington, Mumbai and Manila managed gains. US government borrowing costs jumped on the data, with 10-year Treasury yields touching fresh 24-year peaks before easing as investors bought in, drawn by yields above 5.3 percent. The dollar surrendered most of its rate-bet-driven advance, and the yen drew support from Japan's finance minister warning that Tokyo stood ready to intervene.[S1][S3]
Key Market Figures
At around 0410 GMT, Seoul's Kospi was down 8.0 percent at 5,527.12, Tokyo's Nikkei 225 was down 5.3 percent at 64,163.57, Hong Kong's Hang Seng Index was down 1.5 percent at 23,955.85, and Shanghai's Composite was down 2.0 percent at 3,692.65. West Texas Intermediate fell 1.1 percent to $94.09 per barrel, while Brent North Sea crude dropped 1.6 percent to $104.32 per barrel. The euro rose to $1.1233 from $1.1147 on Wednesday, the pound climbed to $1.3247 from $1.3189, the dollar fell to 157.77 yen from 158.37 yen, and the euro rose to 84.72 pence from 84.57 pence. In New York, the Dow closed down 0.1 percent at 51,621.48, while London's FTSE 100 closed up 0.7 percent at 10,724.86.[S1]
