Asian shares fall on Fed worries after Wall Street sell-off

By YURI KAGEYAMA
AP Business Writer

TOKYO (AP) — Asian shares were trading lower Tuesday, echoing a broad sell-off on Wall Street amid speculation about another interest rate raise from the U.S. Federal Reserve.

Benchmarks in Asia slid across the region in morning trading, including Japan, China, South Korea and Australia. The latest market slide comes as investors grapple with uncertainty over when the highest inflation in decades will ease significantly, how much the Fed will have to raise interest rates in order to get it under control and how much the rate hikes will slow the economy.

Investors will be looking for insight into these unknowns later this week, when the Federal Reserve holds its annual meeting in Jackson Hole, Wyoming.

“The downbeat mood in Wall Street is playing out in the Asia session as well, and although another round of rate cuts to benchmark lending rate in China yesterday may aid to cushion some losses, overall upside could still remain limited amid the shunning of risks,” said Yeap Jun Rong, market strategist at IG in Singapore.

The People’s Bank of China cut a lending rate Monday, a week after it cut interest rates.

Japan’s benchmark Nikkei 225 lost 1.3% in morning trading to 28,413.04. Australia’s S&P/ASX 200 slid 0.5% to 7,009.30. South Korea’s Kospi dipped nearly 1.0% to 2,438.19. Hong Kong’s Hang Seng shed 0.7% to 19,520.36, while the Shanghai Composite fell 0.3% to 3,267.19.

“Investors are being cautious as continuous risk-off flows have hit global markets,” said Anderson Alves at ActivTrades, noting that rising gas prices were a big risk, especially for Europe.

The S&P 500 had its biggest slide since mid-June, sliding 2.1%, nearly doubling its losses from last week, when it broke a four-week winning streak. The Dow Jones Industrial Average slumped 1.9% and the Nasdaq dropped 2.5%.

Technology companies and retailers had some of the heaviest losses Monday. Smaller company stocks also lost ground, pulling the Russell 2000 index 2.1% lower.

Bond yields gained ground. The yield on the 10-year Treasury, which influences rates on home mortgages and other loans, rose to 3.03% from 2.97% late Friday.

The broader market’s losses come on the heels of a weekslong rally. Investors are trying to figure out where the economy goes from here as stubbornly hot inflation hurts businesses and consumers. Record-high inflation also has investors focusing on central banks and their efforts to fight high prices without further damaging economic growth.

“You’ve had quite a rally and there’s reason to not be sure where we’re going from here,” said Tom Martin, senior portfolio manager with Globalt Investments. “There’s still decent potential for a recession.”

Minutes last week from the Federal Reserve’s July board meeting affirmed plans for more rate hikes despite signs of weaker economic activity. Traders worry aggressive steps to slow the economy might go too far and bring on a recession.

Fed Chair Jerome Powell is scheduled to give a speech on Friday morning at the central bank’s annual meeting in Jackson Hole, which starts Thursday. The Fed is holding its meeting following a heavy week of company and economic data that showed inflation is still squeezing the economy, but consumer spending remains resilient.

“I don’t think we’re out of the woods yet on inflation,” Martin said. “We still don’t really know how inflation is going to pan out and what the Fed is going to do.”

In energy trading, benchmark U.S. crude lost 54 cents to $90.23 a barrel. Brent crude, the international standard, added 77 cents to $97.25 a barrel.

In currency trading, the U.S. dollar fell to 137.14 Japanese yen from 137.49 yen. The euro was little changed at 99 cents.

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AP Business Writers Damian J. Troise and Alex Veiga contributed.

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Yuri Kageyama is on Twitter at https://twitter.com/yurikageyama