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Title: Asian shares wallow as U.S. inflation data boosts recession fears

Jul 14, 2022 01:56AM ET

By: AnalysisWatch

Asian stocks fell to a two-year low on Thursday as fears the Federal Reserve would raise interest rates more aggressively fueled a rally in the safe-haven dollar.

MSCI's broadest index of Asia-Pacific shares outside Japan was unchanged in early afternoon trading.

The EuroStox 50 futures were up 0.4%, while the S&P 500 futures recovered early losses and were down 0.1%.

Chinese blue chips rose 0.5 percent after data showed China's exports in June rose at the fastest pace in five months as factories stepped up after the lifting of the COVID blockade. China will release June activity data on Friday along with second-quarter GDP.

Japan's Nikkei rose 0.7% as yen weakness against the dollar boosted exporters, while good employment data helped Australian stocks rise 0.43%.

However, everything in Asia was happening in the shadow of US data overnight, which showed that rising fuel, food and rent costs led to a 9.1% rise in the Consumer Price Index last month.

This has raised fears that the Fed may raise interest rates by a whopping 100 basis points at its meeting this month, rather than 75 bps as expected, which would add to investor fears of a possible recession.

The two-year U.S. yield, which reflects interest rate expectations, was last at 3.2027%, shortly after reaching an overnight four-week high, increasing its lead over the U.S. 10-year benchmark yield, which was at 2.9558%.

The so-called yield curve inversion, when short-dated rates are higher than longer-dated ones, is usually seen as an indicator of a recession, and the gap between the two touched 25 basis points in Asian trading.

In currency markets, the euro was hovering just above parity with the dollar at USD 1.00155. Overnight, it briefly fell to USD 0.9998, crossing below USD 1 for the first time since December 2002.

The European Central Bank has to decide whether to let the currency fall further, which would raise already record-high inflation, or hit back by raising interest rates more quickly and so increase the damage to an economy already hit hard by high energy costs.

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