Global stocks routed as inflation fears dominate

Global stocks tumbled Friday as a sharp bond selloff encouraged investors to dump riskier assets.

Asian markets followed US stocks lower. Japan’s Nikkei 225 (N225) tumbled 4%, while Hong Kong’s Hang Seng Index (HSI) closed down 3.6% — that index’s worst day in nine months. South Korea’s Kospi (KOSPI) dropped 2.8%, while China’s Shanghai Composite Index (SHCOMP) lost 2.1%.

European stocks also dropped sharply in early trading. The FTSE 100 (UKX) shed 0.8% in London, while Germany’s DAX (DAX) and France’s CAC 40 (CAC40) declined by more than 1%.

US stock futures were little changed following heavy losses on Thursday. Dow (INDU) futures added less than 0.1%, while futures for S&P 500 (SPX) and Nasdaq (COMP) were up 0.3%.

Investors around the world are increasingly worried that the wave of pandemic stimulus spending could cause economic growth to accelerate and prices to spike. If inflation takes hold in major economies, central banks could be forced to hike interest rates or curtail asset purchases sooner than expected.

After a long period of easy access to money, that could trigger a market tantrum.

Concerns about higher interest rates are now driving market dynamics, and encouraging investors to dump riskier assets such as tech stocks. Bitcoin prices dropped nearly 4% on Friday, falling below $46,300.

In the United States, the economic outlook has been boosted by the distribution of vaccines, along with the expectation that President Joe Biden will successfully pass a stimulus package through Congress, according to Tai Hui, chief Asia market strategist at JP Morgan Asset Management.

“Investors are now fixated on the risk of inflation and economic overheating,” he said.