TOKYO – Shares were mostly lower Friday in Asia after a sell-off on Wall Street spurred by news that U.S. inflation jumped 7.5% in January, which raised expectations the Federal Reserve will need to move forcefully to cool the economy by raising interest rates.
The hottest inflation reading since 1982 sent the S&P 500 down 1.8%. Treasury yields jumped as traders bet the Fed may have to apply the brakes to the economy with a bigger-than-usual hike in interest rates next month. The yield on the 10-year Treasury topped 2% for the first time since August 2019, according to Tradeweb.
The reaction in Asia was more muted. Hong Kong's Hang Seng was unchanged at 24,920.85 while in Sydney, the S&P/ASX 200 lost 0.6% to 7,245.60. The Kospi in Seoul dropped 0.3% to 2,763.80. Shanghai gained 0.3% to 3,497.71. In Tokyo, markets were closed for a holiday.
The mild initial reactions outside the U.S. suggest “markets may want to look towards economic data to guide expectations, considering that we have seen many central banks walked back on their inflation stance," Jun Rong Yeap of IG said in a commentary.
“We will be getting inflation readings out of China next week, which will be one to watch considering its impact on global prices," he said.
Trading has been volatile this year as investors puzzle over how quickly and by how much the Fed will raise interest rates to tame surging inflation. The benchmark S&P 500 has fallen three out of the last five weeks and is now 6.1% below the all-time high it set Jan. 3.
The S&P 500 fell 83.10 points to 4,504.08, with more than 85% of its stocks ending lower after another day of sharp swings. The Dow Jones Industrial Average fell 1.5% to 35,241.59 and the Nasdaq composite slid 2.1% to 14,185.64.
The Russell 2000 small cap index dropped 1.6% to 2,051.16.
Inflation has been building as the economy roared back from the pandemic. Supply shortages and snags in global supply chains also pushed inflation higher, and prices at the consumer level were up 7.5% last month from a year earlier.
A separate report also said fewer workers filed for unemployment last week than expected. That’s encouraging for workers, but it could add to upward pressure on inflation.
The strong jobs market and high inflation have forced the Federal Reserve to begin removing the massive aid it’s poured into financial markets throughout the pandemic. Raising interest rates could help rein in inflation, but would also put downward pressure on all kinds of investments, from stocks to cryptocurrencies.
In the bond market, yields jumped most for shorter-term Treasurys. The two-year yield leaped to 1.62% from 1.36% late Wednesday. That rate tends to track expectations for what the Fed will do.
The 10-year yield also rose, up to 2.05% from 1.93%. It was at 2.03% early Friday.
“The fixed-income market itself has been flirting and really trying to break through that psychological 2% level, and it did so today,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors.
The Walt Disney Co. jumped 3.3% for the biggest gain in the S&P 500 after it reported a rebound in theme-park attendance last quarter and said it added more subscribers to its Disney+ streaming service than analysts expected. Both its profit and revenue for the latest quarter topped Wall Street's forecasts.
Coca-Cola rose 0.6% after it reported stronger profit for the latest quarter than expected.
If companies can keep growing their profits, their stock prices could continue to rise even if higher interest rates limit how much stock investors are willing to pay for each $1 of earnings.
That's why one of the big questions on Wall Street is how companies will navigate the higher inflation sweeping the world.
In other trading, U.S. benchmark crude oil shed 9 cents to $89.79 per barrel in electronic trading on the New York Mercantile Exchange. It picked up 22 cents to $89.88 per barrel on Thursday.
Brent crude, the price basis for international oils, lost 19 cents to $91.23 per barrel.
The dollar rose to 116.13 Japanese yen from 116.02 yen. The euro slipped to $1.1382 from $1.1430.
AP Business Writers Damian J. Troise, Alex Veiga and Stan Choe contributed.