Asia shares fall on inflation worries, US Federal Reserve outlook

Asian shares declined in early trade on Tuesday as Wall Street retreated on worries about accelerating inflation, prompting investors to cut back on their exposure to growth-focused stocks on bets of higher interest rates in the not-too-distant future.

A host of Federal Reserve speakers this week will likely give markets plenty to consider as policymakers assess how best to respond to receding risks posed by the coronavirus in some major economies.

A test case on US inflation will come this week when the Labor Department releases its latest consumer price index report on Wednesday.

"Markets reversed course overnight as inflation fears drove investors away from growth stocks, notably the tech stocks, to pick cyclicals," said Hong Hao, head of research at BoCom International.

"The Asian markets today will follow the US trend and several Chinese tech stocks will in particular be under big pressure due to the pending antitrust penalty," he said.

In early trade, MSCI's broadest index of Asia-Pacific shares outside Japan was down 1.7 per cent, with Australian stocks off 1.2 per cent and Tokyo's Nikkei 2.63 per cent lower.

Read | Wall Street: Dow falls back after topping 35,000 for 1st time, Nasdaq sinks

China's blue-chip CSI300 index fell 0.77 per cent in morning trade, while Hong Kong's Hang Seng index opened down 2 per cent.

Overnight, Wall Street closed lower as inflation jitters drove investors away from market-leading growth stocks in favor of cyclicals, which stand to benefit most as the economy gathers momentum.

The Dow Jones Industrial Average pulled back from record highs hit earlier in the US day. The S&P 500 extended losses to 1 per cent, and the tech-heavy Nasdaq Composite fell 2.55 per cent.

Speculation that growing price pressure would erode the dollar's value kept the US currency near a 2-1/2-month low. By early Tuesday, the dollar index, which measures the greenback against six major currencies, had pared losses to stand at 90.333.

A sluggish dollar helped sterling rally to $1.412, the highest since Feb. 25, despite Scotland's leader saying another referendum on independence was inevitable after her party's resounding election victory.

Rising inflation expectations lifted longer-dated US Treasury yields. The yield on benchmark 10-year Treasury notes rose to 1.5914 per cent after plunging to a two-month low of 1.469 per cent on Friday.

Also Read | Covid-19 effect: Pharma, oxygen, steel stocks rally

Treasuries and the dollar have swung back and forth as investors adjust their expectations for when the US Federal Reserve will start tapering bond purchases and raising interest rates as the US economy gains momentum.

The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 0.1528 per cent compared with a US close of 0.153 per cent.

Oil prices gave up earlier gains as concerns that rising Covid-19 cases in Asia will dampen demand outweighed expectations that a major US fuel pipeline could restart within the week following a cyber attack.

US heating oil futures, which reflects prices for jet fuel and diesel, stood at 2.0074 a gallon.

US crude dipped 0.63 per cent to $64.51 a barrel. Brent crude fell to $67.83 per barrel.

Gold was slightly lower. Gold was slightly lower. Spot gold was traded at $1834.36 per ounce.