Asia shares slip on inflation, China fears despite US rally

TOKYO: Asian shares mostly slipped Thursday as optimism over earnings was tempered by persistent concerns about inflation and the Chinese economy, despite an overnight rally on Wall Street.

Eyes are on the Bank of Japan, set to wrap up a two-day policy meeting, although analysts expect no major changes.

The BOJ has not indicated it will follow the lead of other central banks, including the US Federal Reserve, in raising interest rates to curb inflation. Japan has suffered years of stagnation, when deflation or falling prices was a major problem.

After the strong showing in Wall Street over the past two days, particularly so for tech stocks, markets may take somewhat of a breather. Lingering caution persists for Chinese equities amid both virus and property sector risks, Yeap Jun Rong, market strategist at IG in Singapore, said in a commentary.

Tokyo's benchmark Nikkei 225 lost 0.1 per cent to 27,657.53 in morning trading. Australia's S&P/ASX 200 edged down 0.1 per cent to 6,751.00. South Korea's Kospi gained 0.4 per cent to 2,397.33. Hong Kong's Hang Seng slipped 1.3 per cent to 20,612.10, while the Shanghai Composite fell 0.5 per cent to 3,286.83.

A mid-week rally driven by strong corporate earnings appeared to be losing steam, laden by worries over energy supplies in Europe and slowing growth in China.

Geopolitical concerns around the Russia/Ukraine conflict continue to weigh on markets as the crisis shows no signs of slowing down. Also weighing on sentiment were reports that Google was pausing new hires for two weeks. This is part of an emerging trend where tech giants are hitting the brakes on hiring, said Anderson Alves at ActivTrades.

Inflation concerns, ongoing geopolitical uncertainty and lingering caution over the pandemic are adding fuel to recession fears and weighing on the outlook for companies," he said in a report.

Wall Street ended Wednesday with gains as investors welcomed another batch of encouraging profit reports from U.S. companies.

The S&P 500 rose 0.6 per cent to 3,959.90. The Dow Jones Industrial Average added 0.2 per cent to 31,874.84, while the Nasdaq gained 1.6 per cent to 11,897.65. Smaller company stocks also gained ground. The Russell 2000 climbed 1.6 per cent to 1,827.95.

It's not exactly the most robust day, but it's nice to follow up on a day like yesterday, said Ross Mayfield, investment strategist at Baird. It feels like over the past couple of months good days have given it all back the very next day.

Profit reporting season is ramping up, with more types of industries offering details about how high inflation and worries about a possible recession are affecting their customers.

For now, traders appear to be encouraged by what they're hearing. Companies so far have been mostly topping profit expectations. Nasdaq, the company behind its tech-heavy namesake trading exchange, jumped 6.1% after delivering stronger profit and revenue than Wall Street expected.

Netflix climbed 7.4 per cent higher after it said it lost fewer subscribers during the spring than expected. It's the worst performing stock in the S&P 500 for the year, though, down by nearly two thirds.

Other tech-oriented companies also made strong gains. Amazon climbed 3.9 per cent, and Nvidia jumped 4.8 per cent.

On the losing end was Baker Hughes, which tumbled 8.3 per cent after it reported weaker results for the spring than analysts expected. Northern Trust fell 4 per cent after its profit fell short of forecasts.

To counter inflation at four-decade highs, the US Federal Reserve has already hiked rates three times this year, by increasing margins each time. When it meets next week, investors say the only question is if it raises its key rate by another 0.75 percentage points or opts for a mega-hike of a full percentage point.

Such increases to rates make borrowing more expensive, which slows the economy. The hope is that the Federal Reserve and other central banks can deftly find the middle ground where the economy slows enough to whip inflation but not enough to cause a recession.

Some parts of the economy are already slowing because of the rate hikes, particularly the housing industry. A report on Wednesday morning showed that sales of previously occupied homes weakened last month by more than economists expected. Higher mortgage rates are dragging on the industry, along with high prices for homes. (AP)