HONG KONG: Asian markets dropped on Friday, tracking Wall Street losses as investors continue to show concern over persistently high global inflation and the likelihood of further interest rate hikes.

Major markets in Tokyo, Shanghai, Hong Kong, Seoul, Taipei, Mumbai and Sydney were lower, in line with overall market sentiment ahead of a decision from the US Federal Reserve next week.

Asian stocks look set to extend their weekly declines into a fifth straight week, following on from continuing weakness in US and European equities.

The Nikkei in Tokyo lost 1.1 percent at the close, as investors “found it difficult to aggressively take positions” ahead of the long weekend and the Fed’s upcoming decision, Seiichi Suzuki, chief equity market analyst at Tokai Tokyo Research Institute, told AFP.

China’s factory output and retail sales beat expectations in August, new data released on Friday showed, despite the economy being hammered by Covid related curbs, heatwaves and a deepening property market slump.

The data did little to buoy China’s main stock market, however, with Shanghai closing down 2.3 percent.

Europe’s main stock markets slid at the open on Friday, with London’s FTSE 100 index particularly impacted by disappointing retail sales data.

Wall Street’s three main indices rallied briefly on Thursday, but the gains fizzled, with traders taking little comfort from US President Joe Biden’s announcement of a tentative deal to avert a potentially damaging railroad strike.

All eyes remain on the Fed, which has already instituted two consecutive 75 basis point hikes and is widely expected to carry out a third.

On Thursday, US retail sales data showed a surprising increase in August, but the report also downgraded sales in the month prior, tempering the good news.

Weekly US jobless claims retreated once again, and industrial production fell modestly in August.

The new data was not enough, however, to offset the widespread bearish sentiment following higher than expected US inflation data released earlier in the week, which showed yearly inflation slowing by less than forecast and monthly inflation rising.

Fed expectations

Analysts expect the Fed to continue raising interest rates, in a bid to cool an overheating economy and combat inflation, which remains near decades highs in major economies.

“Because of the dramatic rise in Treasury yields, the Fed is going to have to keep raising rates beyond (next week),” said prominent investor Louis Navellier in his podcast on Thursday.

“I think they might now raise rates in November just before the (US) midterm elections and possibly December.”

Other commentators echoed that view, with OANDA’s senior market analyst Edward Moya addressing the concern that further hikes could send the world’s largest economy into a recession.

“The latest round of data suggest the Fed can stick to aggressive rate hikes as the labour market remains strong and as the economy slowly softens,” he said.

“The risks of the Fed sending the economy into a severe recession are growing but right now the data doesn’t support that argument.”

Now that the data is in, markets are fully focused on the Fed’s decision as their next potential pivot, said Fiona Cincotta, senior financial markets analyst at City Index.

“This is a market waiting for the next catalyst,” she told Bloomberg News.

“What we saw in the selloff on Tuesday is the repricing of expectations of the Fed. Until we really hear from the Fed we are not going to get a very clear direction.”

Key figures at around 07:15 GMT

Tokyo - Nikkei 225: DOWN 1.1 percent at 27,567.75 (close)

Shanghai - Composite: DOWN 2.3 percent at 3,126.40 (close)

Hong Kong - Hang Seng Index: DOWN 0.9 percent at 18,769.47

EURO STOXX 50: DOWN 0.8 percent at 3,512.88

London - FTSE 100: DOWN 0.4 percent at 7,256.04

Frankfurt - DAX: DOWN 0.6 percent at 12,956.66

Paris - CAC 40: DOWN 0.8 percent at 6,106.82

New York - Dow: DOWN 0.6 percent to 30,961.82 points (close)

Euro/dollar: DOWN at $0.9994 from $0.9997

Pound/dollar: DOWN $1.1422 at from $1.1472

Euro/pound: UP 87.50 pence from 87.14 pence

Dollar/yen: DOWN at 143.44 yen from 143.45 yen

Brent North Sea crude: UP 1.1 percent at $91.80 per barrel

West Texas Intermediate: UP 0.9 percent to $85.82 per barrel