US Inflation And Biden China Trade Probe Threat Deflate Asia Markets

Asia’s equity markets suffered a mixed day on Monday as record high US inflation figures ramped up concerns the Federal Reserve will be forced to tighten its monetary policy sooner than later.

And reports that President Joe Biden was considering a fresh trade probe into China added to the downbeat mood and neutralised the optimism sparked by news that he had held talks on Friday with Xi Jinping in a bid to smooth relations between the superpowers.

After driving a healthy run-up in Asia so far this month, investor sentiment was once again dashed by data on Friday showing US factory gate inflation had soared in August to an all-time high of 8.3%, owing to a jump in demand as well as supply and labour shortages.

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The reading was fuelled partly by a sharp rise in commodity prices, a concern highlighted by news that aluminium had rocketed past the $3,000-a-tonne mark for the first time in 13 years, over concerns about supplies in light of a coup in major bauxite producer Guinea, as well as low Chinese output.

The data ramped up speculation about the Fed’s monetary policy plans. Its boss Jerome Powell has already indicated that the central bank will likely start tapering its vast bond-buying programme – which has been a key driver of the economic and equity markets recovery – by the end of the year.

But the latest figures could force officials to bring forward their timeline and the release on Tuesday of consumer inflation data will now take on even more significance.

“With the US Federal Reserve due to meet next week, and the narrative clearly moving towards a tapering of asset purchases sooner rather than later, there appears to be a build-up in anxiety that the continued rise in inflationary pressure may well be much more persistent than central bankers would have us believe,” CMC Markets analyst Michael Hewson said.

All three US indexes ended in the red on Friday, with reports of Biden’s probe adding to the selling pressure.

SUBSIDIES INVESTIGATION

The president was said to be looking at Beijing’s subsidies and their effect on the US economy, the reports said, with discussions also being held on last year’s trade deal agreed by Donald Trump.

“While initially markets traded positively on the hopes that a restart in high-level dialogue might eventually lead to a reduction in Chinese tariffs,” news about the investigation “delivered the opposite outcome,” National Australia Bank’s Rodrigo Catril said.

Hong Kong led the losers, with tech firms again taking much of the heat on lingering concerns about China’s crackdown on the sector. Market heavyweight Alibaba plunged more than 4% after Chinese regulators ordered sweeping changes to the country’s biggest payment app Alipay.

Alipay – with more than a billion users in China and other Asian nations – was told to spin-off its profitable micro-loan business, the Financial Times reported on Monday.

“The government believes big tech’s monopoly power comes from their control of data,” the source close to financial regulators told the newspaper. “It wants to end that.”

ALIBABA EMPIRE

The firm’s parent company Ant Group is China’s biggest payments services provider and part of the Alibaba empire.

The Hang Seng Index fell 1.5% , or 392.10 points, to 25,813.81. But the Shanghai Composite Index rose 0.33%, or 12.26 points, to 3,715.37, while the Shenzhen Composite Index on China’s second exchange dipped 0.05

Singapore, Taipei, Manila, Mumbai, Bangkok and Jakarta were also down but Tokyo, Shanghai, Sydney, Seoul and Wellington edged higher.

The benchmark Nikkei 225 index advanced 0.22%, or 65.53 points, to end at 30,447.37, while the broader Topix index climbed 0.29%, or 6.06 points, to 2,097.71.

Traders were also keeping tabs on the Korean peninsula after the North test-fired a new “long-range cruise missile” over the weekend, calling it a “strategic weapon of great significance.”

MARKETS

Tokyo – Nikkei 225: UP 0.2% at 30,447.37 (close)

Hong Kong – Hang Seng Index: DOWN 1.5% at 25,813.81 (close)

Shanghai – Composite: UP 0.3% at 3,715.37 (close)

New York – Dow: DOWN 0.8% to 34,607.72 (close)