Asian stocks headed for their worst week in three months on Friday as a string of hotter-than-expected inflation prints and hawkish central bank surprises made investors nervous about the economic toll of taming runaway prices.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.7% and is down 3.6% for the week, its worst since March. Trade was lightened by a holiday in China. Hong Kong shares returned from a break with a 1.4% drop.
Japan's Nikkei fell 1% as core inflation in Japan hit its fastest pace in more than four decades.
On the heels of sticky British inflation data, the news set off a wave of risk-aversion, said Wong Kok Hoong, head of equity sales trading at Maybank in Singapore. The Nikkei was set to snap a ten-week winning streak with a 2.4% weekly drop.
Wall Street had eked gains overnight, but S&P 500 futures fell 0.4% on Friday.
Overnight central banks in Britain and Norway delivered super-sized 50 basis point hikes. Last week the U.S. Federal Reserve surprised markets with a hawkish outlook and central banks in Australia and Canada have delivered unexpected hikes.
The Bank of England's hike to 5%, in the face of sticky inflation and surprisingly strong wages prompted only the briefest jump in sterling before it fell along with gilt yields fell as investors worry tightening will bring economic pain.
"The tight labour market in the UK, given its predominately labour-intensive service-based economy, is proving increasingly problematic and exemplifies the risk in other advanced economies," said ANZ economist Henry Russell in a note.
"Although moves in rates and foreign exchange were muted, there does seem a sense that more tightening is coming in the northern hemisphere," he said.
The U.S. dollar advanced on Friday and was set for its strongest weekly performance in a month. The Australian dollar, which is sensitive to commodity prices and Chinese growth fell 0.5% to $0.6724 and was down more than 2% on the week.
With onshore markets closed the offshore yuan extended recent losses and slid to a new seven-month trough of 7.2225 per dollar.
Maybank's Wong said the market was not buying week-old promises of stimulus to support China's stalling post-pandemic recovery. "Sentiment's weak," he said.
In bond markets U.S. Treasuries were sold overnight when Fed Chair Jerome Powell reiterated that further rate hikes are likely. Two-year Treasury yields rose 9 bps to 4.8% overnight and were steady at 4.7888% in Asia on Friday.
Ten-year Treasury yields rose 7.6 bps overnight and held at 3.7849% on Friday. The prospect of higher rates hit gold, which pays no income, and spot prices slid to three-month lows at $1,910 an ounce.
Brent crude futures were set for their worst week in nearly two months and fell 0.5% to $73.79 a barrel.
Later on Friday purchasing managers index surveys are due in Europe, Britain and the United States, and British retail sales figures are expected to show a slip into reverse.
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