Asian stocks sank on Monday and bond yields ticked higher, as red-hot US inflation reignited worry about even more aggressive Federal Reserve policy tightening, and a Covid-19 warning from Beijing added to the concern about global growth.Japan’s Nikkei slumped 2.78%, and South Korea’s Kospi declined 2.78%.US stock futures pointed to further losses at the reopen, with the S&P 500 indicating 1.54% lower, after Friday’s 2.91% retreat.
Beijing’s most populous district of Chaoyang announced on Sunday three rounds of mass testing to quell a “ferocious” Covid-19 outbreak that emerged at a bar in a nightlife and shopping area last week, spurring concern of more growth-strangling lockdowns only a short time after the city relaxed curbs to quell an outbreak from April.
That dashed hopes that inflation had peaked, and instead put markets on alert that the Fed may tighten policy for too long and cause a sharp economic slowdown. The next policy decision comes on Wednesday. “Inflation isn’t peaking, it isn’t even plateauing. It is still accelerating, and it will likely do so in June” as well, the note said.Two-year treasury yields, which are very sensitive to policy expectations, leapt as high as 3.159% in Tokyo on Monday, a first since December 2007.