Tokyo Hits 31-Year High But Asia Traders Wary Ahead of US Inflation Data

Tokyo clocked up its highest finish in 31 years on Tuesday off the back of hopes for fresh stimulus, but the first gains for Wall Street’s S&P 500 and Dow following a five-day losing streak were not enough to spur a broader advance across Asia.

Investors trod cautiously ahead of US inflation data that could play a key role in determining when the Federal Reserve will start winding down its market-supporting monetary policy.

Experts were also keeping an eye on China after authorities again tightened their grip on the tech sector as part of a wide-ranging regulatory crackdown against private enterprises.

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But the main event this week is the release later Tuesday of US consumer price data, which comes days after figures showed what firms pay at the factory gate had risen last month at a record pace, owing to a jump in demand as well as supply and labour shortages.

That report could put pressure on the Fed to begin tapering its ultra-loose monetary policy as soon as November.

Expectations are that the consumer price reading will come in above 5%, with analysts warning that a reading well above that could force the central bank’s hand in order to prevent inflation from spiralling out of control.

OANDA’s Edward Moya said: “If inflation comes in hotter-than-expected, taper expectations could shift from December to November.”

Hong Kong and Shanghai led losses on concerns about troubled property titan Evergrande, which is teetering on the brink of bankruptcy owing hundreds of billions of dollars.

EVERGRANDE FALL

The firm warned on Tuesday that it was under “tremendous pressure” as it deals with a cash crunch that many fear could send it under – and have a severe impact on the Chinese economy.

Evergrande’s Hong Kong-listed shares fell nearly 12%, and have lost around 80% since the start of the year.

The Hang Seng Index dropped 1.21%, or 311.58 points, to 25,502.23. But the Shanghai Composite Index shed 1.42%, or 52.77 points, to 3,662.60, while the Shenzhen Composite Index on China’s second exchange fell 0.48%, or 11.95 points, to 2,488.88.

Wellington, Taipei, Manila and Bangkok also fell, however, Tokyo finished at its highest level since 1990 on hopes that a new prime minister will introduce more stimulus for the stuttering Japanese economy.

The benchmark Nikkei 225 index ended up 0.73 %or 222.73 points at 30,670.10, a 31-year high, while the broader Topix index gained 1.01% or 21.16 points to close at 2,118.87.

Sydney, Singapore, Seoul, Mumbai and Jakarta also rose.

COVID FLARE-UP

Confidence has also been knocked by fears about another coronavirus flare-up in China, with dozens of positive cases in Fujian province forcing authorities to carry out mass testing and shut down public transport in one county.

The news has led to talk that leaders could reimpose tough lockdown measures to prevent the spread of the disease, a move that dealt a blow to China’s economy when another outbreak occurred earlier this year.

In Washington, House Democrats unveiled plans for sweeping tax reform on Monday, including reversing Trump-era cuts and raising rates on the wealthy and corporations as they look to raise nearly $3 trillion to help subsidise President Joe Biden’s multi-trillion-dollar expansion of the social safety net and other public investments.

MARKETS

Tokyo – Nikkei 225: UP 0.7% at 30,670.10 (close)

Hong Kong – Hang Seng Index: DOWN 1.2% at 25,502.23 (close)

Shanghai – Composite: DOWN 1.4% at 3,662.60 (close)

New York – Dow: UP 0.8% to 34,869.63 (close)