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Asian markets drop as oil prices put pressure on inflation

Asian markets drop

Tokyo briefly dropped 3.5 percent before paring some of the losses, while Sydney, Seoul, Singapore, Wellington and Jakarta also dropped

Most Asian markets dropped Tuesday after a Wall Street slump as soaring oil prices put further upward pressure on inflation.

Investors were nervously monitoring developments in the crisis surrounding distressed property giant China Evergrande, which has raised warnings about contagion in the world’s number two economy and possibly beyond.

A decision Monday by OPEC and other major producers not to increase their output by more than previously agreed, despite tightening supplies and rising demand, sent crude prices rocketing, with West Texas Intermediate (WTI) hitting a seven-year high and Brent a three-year peak. Both main contracts rose Tuesday.

The announcement fanned expectations that inflation, already at multi-year highs, will spike further, putting pressure on central banks to taper their ultra-loose monetary policies sooner than flagged with interest rates to then rise.

And some analysts are warning of a period of stagflation, in which prices surge while economic growth stalls.

Crude markets have come under pressure as the global economy emerges from the covid crisis, pushing up demand for travel, among other things, while the approaching northern hemisphere winter has seen gas prices climb, which has in turn led companies to switch to oil.

Prices are likely to remain supported in the final quarter, with gas-to-oil switching and pricey coal adding to oil consumption, Will Sungchil Yun, an analyst at VI Investment Corp, said.

All three main indexes on Wall Street ended deep in the red, led by the Nasdaq, as tech firms took a beating owing to their susceptibility to higher interest rates.

And the losses continued in Asia, with Tokyo briefly dipping 3.5 percent before paring some of the losses. Sydney, Seoul, Singapore, Wellington and Jakarta also dropped.

However, Hong Kong reversed early losses following Monday’s sharp drop, while Taipei, Manila, Mumbai and Bangkok inched up. Shanghai was closed for a holiday.

London, Frankfurt and Paris rose after opening.

It looks like we are in for a bit of a chop-fest in financial markets for the rest of the week, until Friday’s US jobs data gives the street some clarity on the Federal Reserve taper, said OANDA’s Jeffrey Halley.

And Emily Weis at State Street told Bloomberg Television: We think there is going to be more volatility in these markets. It’s not going to be the same sort of ‘risk assets always go up over time’ story that maybe happened in the rebound from Covid.

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