Asian markets becalmed as hot US inflation read worries
On Wednesday, Asian stock markets were becalmed as surges in oil and Chinese factory prices added to worries that a hot US inflation reading could cause policymakers to lift interest rates.
The US crude futures rose 1 percent to a two-week high of US $84.97 a barrel in early trade. Brent futures made a one-week top of $85.35.
The factory gate prices in China have gone up 13.5 percent year-on-year since October, according to data, beating forecasts and warning of pressure on supply chains to global consumers.
The Nasdaq logged its first fall in a dozen sessions, with the broadest index of Asia-Pacific shares outside Japan and Japan's Nikkei each dropping 0.2 percent in and Overnight on Wall Street.
The US data is expected to show consumer prices go up 5.8 percent year-on-year and even dovish Federal ReserveFederal Reserve officials Neel Kashkari and Mary Daly have conceded that it is running hotter for longer than expected.
I would imagine that now there is no doubt that the risks around inflation are more elevated than previously assumed, according to NatWest Markets strategists.
On Tuesday, longer-dated bonds had rallied, flattening the Treasury yield curve, as investors seem to be betting on hikes in the next year or so to combat growth and inflation in the years to come.
A firm CPI read can add a bit more fuel to the flattening, according to NatWest analysts. At this point, a weak CPI number wouldn't be enough to ease markets into thinking that the Fed will hold back. The benchmark 10 year yield was lifted by a few basis points in Asia hours to 1.4626 percent, after it had touched a six week low of 1.4150 percent overnight.
The yen has climbed to a one-month high after the currency markets have been quiet but traders favor safe havens on Tuesday.
The Japanese currency held there on Wednesday at 112.84 per dollar and risk-sensitive currencies such as the Australian dollar were under pressure, with the Aussie testing support at its 50 day moving average of $0.7374.
Chris Weston, head of research at broker Pepperstone in Melbourne said that the dollar will be sensitive to moves in the 2 -- 5 year part of the US Treasury curve.
He said that the dollar index would need a monthly US CPI print of 0.8 percent to break out of the top of the range of 94.50. The index was last at 93.997.
The economic slowdown in China is nagging on investors' minds, especially since a credit crunch seems to be spreading quickly through the giant property industry.
Bonds in the sector had suffered a pounding on Tuesday, with the sell-off dragging in even investment-grade debts.
The market is driven by fear rather than rationale, according to analysts at J.P. Morgan. Valuations have factored in the worst case scenario. Other clouds are brewing with a survey in Japan showing that manufacturers' business confidence has fallen to a new seven-month low and Tesla stock, a bit of a gauge of retail investors' sentiment, turning wobbly.
The carmaker, which has been the poster-stock of the thumping rally from Pandemic lows, suffered its sharpest share price fall in 14 months on Tuesday as traders brace for a possible sale from Elon Musk.
Gold andBitcoin have been the main beneficiaries of the market turbulence, with gold up 3.5 percent in a week to $1,829 an ounce andBitcoin hovering at $67,267 after hitting a record peak of $68,564 a day ago.