hong kong stocks follow overnight us equities rout, slump most in six weeks as inflation report portends higher interest rates

Hong Kong stocks dropped by the most in six weeks, taking cues from a rout in US equities after a an official report showed untamed American inflation, stoking fears that the Federal Reserve will be more aggressive with interest-rate increases.

The Hang Seng Index slumped 2.3 per cent to 18,875.53 in early trading on Wednesday, heading for the biggest decline since August 2. The Hang Seng Tech Index sank 2.7 per cent, while the Shanghai Composite Index lost 0.7 per cent.

All 79 Hang Seng Index members but one fell. Power tool maker Techtronic Industries and e-commerce giant JD.com lost more than 5 per cent as the worst performers.

The sell-off also spilled over to Asia’s other major markets, with benchmarks in Japan, South Korea and Australia falling by more than 2 per cent. That followed tumultuous trading in the US that sent the major equities plunging by the most in more than two years. Traders shifted to haven assets, pushing the dollar index by 1.4 per cent to near a two-decade high.

US consumer prices rose 8.3 per cent in August, according to the Labour Department, topping the median estimate of 8.1 per cent. So-called core inflation, which excludes the more volatile food and energy components, also exceeded projections.

The data is a setback for some traders, who had chased a rebound on hope that inflation had already peaked. Derivative traders have increased bets that the Fed will raise borrowing costs by 75 basis points later this month, with some even expecting a full percentage-point increase.

“The Fed will likely have to be even more aggressive with raising rates and that is bad news for risky assets,” said Edward Moya, an analyst at Oanda. “The playbook for a lot of traders was that the Fed would be done with raising rates in December, but that probably won’t be how things play out as inflation remains hot.”

Keyword: Hong Kong stocks follow overnight US equities rout, slump most in six weeks as inflation report portends higher interest rates

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