Asia report: Stocks fall on instability, inflation concerns

Stock markets in Asia closed in the red on Friday, amid ongoing concerns of further interest rate rises, while investors also reacted to the latest round of prime ministerial musical chairs in the UK.

In Japan, the Nikkei 225 was down 0.43% at 26,890.58, as the yen weakened 0.93% against the dollar to last trade at JPY 151.54.

Automation specialist Fanuc was down 0.12%, fashion firm Fast Retailing lost 0.61%, and technology conglomerate SoftBank Group was off 0.38%.

The broader Topix index was 0.71% weaker by the end of trading in Tokyo, settling at 1,881.98.

Fresh data showed core consumer prices in Japan rising 3% year-on-year in September, in line with expectations and faster than the 2.8% print in August.

Core prices exclude the volatility of fresh food, but include costs for fuel and oil.

Headline inflation was also 3% year-on-year for the month, well above the 2% target set by the Bank of Japan and making for the fastest clip in more than eight years.

Stripping out both fresh food and energy prices, inflation came in at 1.8% in September compared to a year ago.

“CPI price rises are broadening out, but this is largely a result of cost-push inflation, especially from imported energy and other imported goods,” Pantheon Macroeconomics economist Duncan Wrigley said.

“Wage increases have not picked up, judging by the still-soft consumer services prices.

“This means that Japan is still far away from a consumer demand-driven sustainable inflation scenario that would lead the BoJ to change its loose monetary policy stance.”

Expectations were for the Bank of Japan to hold the line on monetary policy, Wrigley said, despite downward pressure on the yen, to support the weak domestic economy and lacklustre wage growth.

“Instead, the Finance Ministry will conduct more direct interventions to prevent sharp currency falls.

“Last month it spent $19bn of official foreign-exchange reserves in yen-buying to slow the pace of currency depreciation - its first such intervention since 1998.”

On the mainland, the Shanghai Composite was 0.13% firmer at 3,083.93, and the technology-heavy Shenzhen Component was 0.42% lower at 10,918.97.

South Korea’s Kospi was off 0.22% at 2,213.12, while the Hang Seng Index in Hong Kong lost 0.42% to 10,918.97.

Data released by the customs agency in Seoul showed Korea’s trade deficit widening to $4.95bn for the first 20 days of October, from $4.1bn over the same period in September.

Exports from the south of the peninsula were down 5.5% year-on-year, slowing from the 8.7% fall in September, while imports rose 1.9% compared to last month’s 6.1%.

“The seasonally adjusted month-to-month data also indicates stronger demand in the US and the EU in the first 20 days of October,” explained Duncan Wrigley at Pantheon.

“This again contrasts with weakness in China and Japan, though the pace of decline for exports to both countries moderated.

“The view of north-east Asia’s economies using this data is less bleak than the year-over-year data, but hardly promising.”

Wrigley said expectations were for Korean exports to remain weak, owing to a slowing global economy.

“At best, the full-month export data for October will show a momentary moderation in the pace of decline.

“The trend will continue downward this winter, especially given the gloomy economic picture for China and Europe.”

The blue-chip technology stocks were in the green in Seoul, with Samsung Electronics up 0.72% and SK Hynix rising 0.33%.

“Asian shares dipped once more overnight on the latest interest rate projections which could yet herald a recession, while the Japanese yen wilted in the face of dollar strength to sink to 32-year lows,” said Interactive Investor head of markets Richard Hunter.

“At the same time, the Japanese inflation rate spiked to 3%, underlining the Bank of Japan’s dilemma as it tries to remain accommodative to boost the economy, but by the same token accelerating a weaker yen.

“In China, meanwhile, investors were on cautious alert ahead of any policy announcements from the Communist Party Congress, with shares edging slightly higher on hopes of economic aid.”

Hunter added that the UK captured the attention of the global investment community once more, though not for the right reasons, after prime minister Liz Truss became the country’s shortest-ever serving prime minister with her Thursday resignation.

“The political turmoil, allied to a volte-face around the fiscal event, have served to mar credibility, undermine sterling and send the gilt market into something of a tailspin which would have been more severe without Bank of England intervention.

“With the latest figures indicating a drop in retail sales and a further increase in government borrowing, the intense pressure will remain on not just the economy itself, but also for the country as an investment destination which had been showing some signs of life and overseas interest earlier in the year.”

Oil prices were in the green as the region entered the weekend, with Brent crude futures last up 0.49% on ICE at $92.82, and the NYMEX quote for West Texas Intermediate ahead 0.5% at $84.93 per barrel.

In Australia, the S&P/ASX 200 was down 0.8% at 6,676.80, while across the Tasman Sea, New Zealand’s S&P/NZX 50 slipped 0.46% to 10,782.36.

The down under dollars were both weaker against the greenback, with the Aussie last off 0.57% at AUD 1 .6013, and the Kiwi retreating 0.61% to NZD 1.7718.

Reporting by Josh White at Sharecast.com.