As the day began, most Asian stocks experienced a slight dip as Chinese data fell short of expectations. Such economic data reflected that China is going through a slothful economic recovery.
Federal Reserve’s Hawkish Approach
This is coupled with the fact that the Federal Reserve is considering an aggressive monetary approach to combat inflation.
Ever since the economies around the world started to pick up pace after the pandemic, inflation has been at its peak.
To curb this inflation countries across the world have been taking various measures and adopting numerous monetary policies.
Similarly, the Federal Reserve is said to have been taking a hawkish monetary approach against inflationary pressure.
If economies start giving in to the inflationary pressure then there will be no end to this vicious cycle.
Asian Stocks Edge Lower
On the Chinese stock market index, Shanghai Composite, and Shanghai Shenzhen CSI 300 there was a slight reduction in stocks.
Both these indexes reflected a fall of 0.3% owing to the fact that the change in consumer inflation was below expectation. On the other end producer, inflation also aggravated which means
KOSPI of South Korea and Taiwan Weighted index fell by 0.2%, however, in better news Hang Send saw a 0.2% rise.
Overall Chinese stocks have remained stable, with very minor changes in the stocks.
Nevertheless, since there hasn’t been any major rise in stocks, it seems like the Chinese economy will take its time to recuperate.
Japan’s stock market performed significantly different from the rest of the Asian stocks. Nikkei 225 of Japan was top performing, leading the market with a 0.6% rise.
This is the fifth consecutive session for the Japanese stock market where it has experienced a gain.
This has left investors predicting that the Bank of Japan might not alter its flimsy monetary policy any time soon.
On the contrary in the fourth quarter of 2022, the Japanese economy did not grow further in, however, the Nikkei stock market remained unaffected.
Indian Stock Market
BSE Sensex 30 and Nifty 50 indexes of India did not move much, however, stocks in the tech sector saw a fall.
Adani Enterprises Ltd saw a 0.2% increase in their shares which reflected an improvement in the sixth consecutive session.
The shares of the Indian multinational rose probably because of the investment of $1.7 billion it made recently. The company also announced that it was most likely going to invest more after this $1.7 billion.
Consumer Inflation and Producer Inflation Explained
Consumer inflation and producer inflation are two important aspects when it comes to assessing the stock market.
While consumer inflation is a measure of the cost of living, producer inflation refers to the cost of production.
Higher consumer inflation means that people have to buy pay more to purchase the same goods and services.
On the contrary, lower consumer inflation would mean that the prices remain unaffected hence the buying power is better.
How Does Inflation Impact Stocks?
Inflation can have varying impacts on the stock market, which can be both negative and positive. One of the most common effects of inflation is the rise in interest rates by the state financial institutions.
What this in essence means is that borrowing becomes more expensive for the companies, resultantly lowering their profits and share prices.
The cost of production is also negatively affected by inflation, which means hurting the profitability of companies and manufacturers.
With the cost of production going up, the profit margin shrinks, leaving little room for better earnings.
Investor sentiment and confidence are two important aspects of any economy as these keep the flow of capital running in an economy.
High inflation means the economy is not stable and investors don’t feel confident about investing money, which results in lower stock prices.
The Asian stock market experienced a significant decline through 2022, with shares of some top companies depreciating. The trend is said to have continued this year so far, however, what lies in the future is yet to be seen.