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Asian Stocks Down, Inflation, COVID-19 Fears Overshadow Improving Economic Outlook

Stock Markets8 minutes ago (May 20, 2021 10:57PM ET)Asian Stocks Down, Inflation, COVID-19 Fears Overshadow Improving Economic Outlook© Reuters.

By Gina Lee – Asia Pacific stocks were mostly down Friday morning even as the economic outlook improves and investor fears of a decrease in U.S. stimulus eased.

Japan’s Nikkei 225 was up 0.43% by 10:39 PM ET (2:39 AM GMT). The National Core Consumer Price Index (CPI) for April contracted by a better-than-expected 0.1% year-on-year in April while the 0.4% contraction in the National CPI month-on-month was larger than the previous month’s 0.2% growth, according to data released earlier in the day.

South Korea’s KOSPI edged down 0.20%.

In Australia, the ASX 200 inched down 0.07%, with retail sales data for April released earlier in the day.

Hong Kong’s Hang Seng Index was down 0.25%. China’s Shanghai Composite fell 0.51% and the Shenzhen Component was down 0.41%.

Concerns about runaway inflation as well as the COVID-19 outbreaks in some countries that led to more restrictive measures, alongside a brightening economic outlook in places like the U.S. and Europe, continue to dictate market moves.

U.S. Treasury yields continued to retreat, as demand for Thursday’s auction of 10-year Treasury Inflation-Protected Securities disappointed. The demand also indicated waning confidence in the U.S. Federal Reserve’s insistence that any inflation is likely to be temporary.

The minutes from the Fed’s latest meeting, released on Wednesday, hinted that debate on scaling back unprecedented stimulus to support the economy through COVID-19 took place.

U.S. initial jobless claims dropped to their lowest level since March 2020, with 444,000 claims filed during the previous week.

Some investors warned that the road towards economic recovery from COVID-19 remains long.

“While inflation has been the star of the show, keep in mind that the Fed’s mandate is twofold, with employment as the other side… the jobless claims read shows once again that we’re heading in the right direction, but we’re a ways away from where we were pre-COVID-19,” E*Trade Financial (NASDAQ:ETFC) managing director of investment strategy Mike Loewengart told Bloomberg.

However, other investors struck a more optimistic note.

“Overall we’re still quite risk-on,” UBS Chief Investment Office head of global asset allocation Adrian Zuercher told Bloomberg. COVID-19 vaccine rollout and reopening up of the economy “should lead to higher equity markets” and that the “reflation trade is not over yet,” he added.

Further data on existing U.S. home sales for April are due later in the day.

Investors also focused their attention on U.S. President Joe Biden’s tax agenda as the Treasury Department unveiled details of a proposal to raise $7000 billion in additional revenue over the next ten years.

The funds will be raised via Internal Revenue Service enforcement, with cryptocurrency transfers worth $10,000 or more required to be reported to tax authorities. The U.S. also separately called for a global minimum corporate tax of at least 15%.

Across the Atlantic, Eurozone finance ministers and central bank chiefs are due to meet informally later in the day, with a larger, more formal European Union gathering taking place a day later.Asian Stocks Down, Inflation, COVID-19 Fears Overshadow Improving Economic Outlook

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