Shares fell in Asia on Friday after technology companies led Wall Street benchmarks lower as investors weighed the implications of higher interest rates, surging coronavirus cases and tensions between Beijing and Washington.
Tokyo, Hong Kong, Shanghai and Seoul declined, but shares rose in Sydney. US shares dropped a day after the Federal Reserve said it’s preparing to begin raising rates next year to fight inflation.
Traders were also considering other moves by global central banks. The Bank of England became the first central bank among leading economies to raise interest rates to fight inflation. The European Central Bank still plans to trim its pandemic stimulus, but not abruptly.
The Bank of Japan said on Friday it would reduce some of its pandemic support measures, reducing purchases of corporate bonds to pre-crisis levels after March. But its board meeting kept monetary policy mostly unchanged.
“Japan’s economy has picked up as a trend, although it has remained in a severe situation due to the impact of Covid-19 at home and abroad,” it said in a statement. It noted continued risks from the pandemic and supply chain disruptions.
Tokyo’s Nikkei 225 index dropped 1.8 per cent to 28,558.75 and the Kospi in Seoul lost 0.4 per cent to 2,994.21. In Australia, the S&P/ASX 200 gained 0.4 per cent to 7,323.00.
Hong Kong's Hang Seng lost 1.3 per cent to 23,175.19. The Shanghai Composite index gave up 0.9 per cent. Tensions between the US and China were in the spotlight after the US Congress approved legislation barring all imports from China's Xinjiang region unless businesses can prove they were produced without forced labour.
It was the latest measure intensifying US penalties on China. The Commerce Department also levied new sanctions targeting China’s Academy of Military Medical Sciences and its 11 research institutes that focus on using biotechnology to support the Chinese military.
Thursday’s sell-off on Wall Street took the S&P 500 0.9 per cent lower to 4,668.67, erasing about half of its gains from the day before. The Nasdaq slid 2.5 per cent to 15,180.43, its biggest drop since September. The Dow Jones Industrial Average slipped 0.1 per cent to 35,897.64.
Several big technology companies weighed on the market. Apple slid 3.9 per cent and Microsoft dropped 2.9 per cent.
Small company stocks also took heavy losses. The Russell 2000 index gave up 2 per cent to 2,152.46. All the major indexes are on pace for a weekly loss.
The sell-off followed a rally the day before when the Fed signalled plans to speed up its reduction in monthly bond purchases that have helped maintain low interest rates. The shift in policy sets the stage for the Fed to begin raising rates sometime next year.
Large technology companies often have lofty valuations based on assumptions about their profitability going far into the future. Investors tend to accept those higher valuations more easily when interest rates are extremely low, giving them fewer alternatives for returns. With interest rates poised to rise, investors are rethinking the high valuations they put on tech giants.
Inflation has been a growing concern throughout 2021. Higher raw materials costs and supply chain problems have been raising overall costs for businesses, which have raised prices on goods to offset the impact. Consumers feeling the pinch may end up curtailing their own spending, crimping growth.
Rising numbers of omicron variant coronavirus infections are also casting a shadow as public health experts have begun urging greater precautions and warning of a worsening wave of Covid-19 outbreaks.
Among various updates on Thursday, the number of Americans applying for unemployment benefits rose last week and the figure was bigger than economists expected. The jobless claims, at 206,000, are still low by historical standards.
US industrial production increased 0.5 per cent in November, according to the Federal Reserve, as output at the nation's factories reached the highest level since January 2019. The figure fell just shy of economists' forecasts.
The Commerce Department reported that new home construction in the US rebounded 11.8 per cent in November as strong demand continues to boost builder confidence even with the slower winter season approaching.
The yield on the 10-year Treasury fell to 1.42 per cent from 1.43 per cent late on Thursday.
The US dollar weakened to 113.53 Japanese yen from 113.69 yen. The euro was unchanged at $1.1330.