Asian markets down on hot US inflation data
Asian stock markets were down on Wednesday 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 by 1 percent to a two-week high of US $84.97 a barrel in early trade, and Brent futures made a one-week top of $85.35.
Factory gate prices in China have gone up 13.5 percent year-on-year since October, beating forecasts and warnings of the pressure going down supply chains to global consumers.
The Nasdaq reported its first fall in more than a dozen sessions as the broadest index of Asia-Pacific shares outside Japan and Japan's Nikkei dropped 0.2 percent in and Overnight on Wall Street.
Consumer prices are expected to increase at 5.8 percent year-on-year, and even dovish Federal ReserveFederal Reserve officials Janel Kashkari and Mary Daly have conceded that it is running hotter for longer than expected, according to US data due at 1330 GMT.
In a note from NatWest Markets strategists, I would think that now there is officially little doubt left within the Fed that the risks around inflation are much more elevated than previously assumed.
Longer-dated bonds had rallied on Tuesday, flattening the Treasury yield curve, as investors seem to be betting on hikes in the next year or so to squash growth and inflation in the years to come.
NatWest analysts said a firm CPI reading could add a bit more fuel to the flattening. I would argue that a weak CPI number wouldn't be enough to ease markets into thinking that the Fed will hold back. The benchmark 10 year yield dropped a bit in Asia hours, lifting it by about 2 basis points to 1.4626 percent after it had touched a six-week low of 1.4150 percent overnight.
On Tuesday, the yen was lifted to a one-month high after the currency markets were quiet but traders favoured safe havens.
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 we need to see a monthly US CPI print of 0.8 percent to see the dollar index 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 as a credit crunch seems to be spreading quickly through the giant property industry.
Bonds in the sector had suffered a new 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. A survey in Japan shows that manufacturers' business confidence has fallen to a new seven-month low and Tesla stock is 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 turmoil, with gold up 3.5 percent in a week to $1,829 an ounce and bitcoins hovering at $67,267 after hitting a record peak of $68,564 a day ago.