Fears about surging inflation continued to trouble Asian markets on May 12, with investors nervously awaiting crucial US price data later in the day that could ramp up expectations the Federal Reserve (Fed) will taper its monetary policy earlier than flagged.
Global equities have had a torrid start to the week as traders bet that stimulus measures, the rollout of vaccines and the reopening of businesses will fan a blockbuster recovery in the world economy but bring with it an explosion of spending that will push costs through the roof.
And with a range of commodities including copper, iron ore and lumber all surging to records or multi-year highs, those concerns are increasing while observers said rising demand for employees is also pushing up wage costs, adding upward pressure to prices.
"It's not going to be that easy to pull eight million people off their sofas and back to work without the price of doing that having to be higher than it was before," said TwentyFour Asset Management CEO Mark Holman. "This is inflation risk."
The unease on trading floors comes despite repeated Fed insistence that while it sees inflation spiking owing to the recovery and the low base of comparison last year, officials will not make any policy adjustments such as winding in their bond-buying or lift interest rates yet.
The US central bank's position is that it will not move until it is happy unemployment is under control and inflation is running hot for an extended period.
Tech firms – which boomed last year as people were forced to stay home – have been at the forefront of the sell-off as they are considered susceptible to higher borrowing costs owing to the potential effect on their future earnings and cash flow.
A big miss on US jobs creation on May 7 had eased inflation worries but they returned this week and Wall Street has plunged for two days, while observers warn an above-forecast reading on the consumer price index (CPI) on May 12 could spark another sharp sell-off.
"It's all about inflation expectations," Priya Misra, of TD Securities, said on Bloomberg TV.
She said if the CPI report signals "inflation is likely to be higher for a while, I think the taper discussion will come back into the forefront and then we can get a bigger interest rate move".
But CMC Markets analyst Michael Hewson added that a jump of as much as 3.6 per cent in the CPI "shouldn't surprise anybody with a rudimentary knowledge of base effects, and looking at where commodity prices were this time last year".
Asian markets were broadly down for a second day.
Tokyo shed 1.6 per cent to extend May 11's more than three per cent plunge, while Seoul and Manila were also off more than one per cent. Sydney, Singapore, Wellington, Mumbai and Bangkok all fell.
Taipei's tech-rich bourse tumbled more than eight per cent at one point as tech fears were compounded by news that Taiwan was imposing strict containment measures including the banning of large gatherings over a cluster of local infections.
The index pared a lot of the losses but still finished down 4.1 per cent.
Hong Kong and Shanghai gained on bargain-buying.
London rose as data showed the British economy contracted in the first quarter but indicated signs of a healthy recovery in March. Paris and Frankfurt were also well up.
Meanwhile, strategists said that while markets were undergoing some turbulence that was to be expected after a more than one-year rally and with valuations considered high, while the outlook remained upbeat owing to the economic recovery.