Asia’s Traders Cautious as Growth, Covid and Inflation Fears Grip

• Nikkei dips after Bank of Japan trims GDP forecast

• Hong Kong ends flat following Biden warning to firms doing business in the city

Asia’s markets fell back on Friday as concerns over economic growth and virus outbreaks weighed on traders.

There was also an air of caution on trading floors after Federal Reserve Chair Jay Powell reiterated the central bank’s plan to maintain stimulus initiatives until the economy fully recovers – while Treasury Secretary Janet Yellen warned that inflation would remain elevated for months to come.

“I think we will have several more months of rapid inflation, so I’m not saying that this is a one-month phenomenon,” Yellen told CNBC after US markets closed.

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However she predicted price increases would reach “normal levels” over the medium term.

Wall Street ended mixed, with the Dow closing marginally higher while the other two major indexes retreated.

“Risk aversion is firmly in place, possibly because the earnings bar may have been set too high for the banks and because the reopening trade can’t get its groove back. It didn’t help having China’s economic growth reading overnight come in below expectations,” said OANDA’s Edward Moya.

Asian markets were mostly lower, with Tokyo closing down with investors cautious over expanding Covid-19 infections and as the Bank of Japan trimmed its GDP growth forecast for the current fiscal year.

COVID SPIKES

“Investors are worried about a spike in infection cases in Tokyo ahead of the Olympics,” Shinichi Yamamoto, a broker at Okasan Securities, told AFP.

The benchmark Nikkei 225 index fell 0.98%, or 276.01 points, to 28,003.08. Over the week, however, it rose 0.22%. The broader Topix index lost 0.38%, or 7.42 points, to 1,932.19 but gained 1.04% from a week earlier.

Hong Kong ended flat as late profit-taking wiped out earlier gains ahead of an advisory from US President Joe Biden expected later on Friday warning firms over doing business in the city as Beijing tightens its grip.

BIDEN WARNING

“The situation in Hong Kong is deteriorating. And the Chinese government is not keeping its commitment that it made how it would deal with Hong Kong,” Biden said Thursday at a press conference with visiting German Chancellor Angela Merkel, signalling no imminent improvement in Sino-US relations.

The Hang Seng Index added 0.03%, or 8.41 points, to close at 28,004.68. The benchmark Shanghai Composite Index fell 0.71%, or 25.29 points, to 3,539.30, while the Shenzhen Composite Index on China’s second exchange slid 0.99%, or 24.66 points, to 2,454.06.

Shanghai closed 0.7% lower while Seoul, Taipei, Kuala Lumpur and Bangkok also retreated. Wellington was flat while Sydney, Singapore, and Jakarta ticked higher.

RETAIL SALES

Investors were also awaiting US retail sales for June due later in the day for the latest indication on the state of the economic recovery.

“While the US is doing well on the vaccine rollout plans and the reopening of the economy, with theme and holiday parks also reopening, the rise in cases that we are now seeing appears to be feeding into an overriding feeling of caution around consumer spending patterns which appears to be tempering retail sales,” said Michael Hewson, chief market analyst at CMC Markets UK.

Both main oil contracts were trading marginally higher in Asian trade, with WTI down 3.9% over the week while Brent was 2.7% lower.

MARKETS

Tokyo – Nikkei 225: DOWN 1.0% at 28,003.08 (close)

Hong Kong – Hang Seng Index: FLAT at 28,004.68 (close)

Shanghai – Composite: DOWN 0.7% at 3,539.30 (close)

New York – Dow: UP 0.2% at 34,987.02 (close)