ASIA MARKETS: Shares, Currencies Fall On Growth Concerns; Ringgit At 2-year Low

Thursday,   19-May-2022   09:36 AM (IST)

Asian shares and currencies declined following a rout on U.S. equities on worries over the impact of high inflation and monetary policy tightening on economic growth. Shares tumbled 3% in Hong Kong, dropped 2.2% in Japan, and fell 1.5% in South Korea and Australia. Chinese equities lost 0.7% and the FTSE Bursa Malaysia KLCI Index was down 0.4% at 1,548.70. Press Metal Aluminium and Petronas Dagangan were the top losers on the KLCI. The Malaysian ringgit fell 0.3% to 4.4030 to the dollar, a level last seen at the peak of the pandemic crisis in March 2020. The South Korean won slipped 0.6% and the onshore Chinese yuan inched lower to 6.76. Futures on the S&P 500 were a tad lower, indicating little respite for the gauge that yesterday suffered its worst fall in almost two years. The index plunged 4% on concerns that high inflation and the U.S. Federal Reserve’s rate hikes will weigh on economic activity. Goldman Sachs, in a report released on Sunday, revised lower its projections for U.S. economic growth for the current and the next year, citing tightening financial conditions. The U.S. is not the only major economy that is contending with high inflation and a challenging growth outlook. Yesterday, data from the U.K., Eurozone, and Canada showed that inflation remained well above levels that policymakers are comfortable with. While the Fed and central banks of the U.K. and Canada have already commenced the rate hike cycle, the European Central Bank is expected to raise rates at the July meeting and bring the key policy rate to positive territory by September. The pace of rate hikes by the Fed and most other central banks is unlikely to change course amid the expected slowdown in economic activity and the selloff in equities. Fed policymakers have said that bringing inflation down is the biggest priority and Chair Jerome Powell has remarked that the inflation battle could lead to some economic pain. Powell also said that the U.S. central bank was willing to move more aggressively should price pressures not subside. The rout in U.S. equites provided a boost to safe-haven dollar and Treasuries. The dollar index yesterday halted a three-day slide and long-term Treasury yields declined about 10 basis points.