Asian stock markets were becalmed on Wednesday due to fears that a hot US inflation reading could lead to more pressure on policymakers to lift interest rates, as well as surges in oil and Chinese factory prices.
US crude futures rose 1 percent to a two-week high of US $84.97 a barrel in early trade, while 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, according to data showing, beating forecasts and warnings of pressure on supply chains to global consumers.
MSCI's broadest index of Asia-Pacific shares outside Japan and Japan's Nikkei each dropped 0.2 percent in and Overnight on Wall Street, with the Nasdaq logging its first fall in a dozen sessions.
Consumer prices are expected to go up over 5.8 percent year-on-year and Federal Reserve officials Neel Kashkari and Mary Daly have conceded that it is running hotter for longer than expected, according to US data due at 1330 GMT.
The risks around inflation are much more elevated than previously thought, according to NatWest Markets strategists, according to a note from them.
The Treasury yield curve was flattening on Tuesday, as investors seem to be betting on hikes in the next year or so in the years to come after the longer-dated bonds have rallied, flattening the Treasury yield curve.
A firm CPI read can add a bit more fuel to the flattening, according to NatWest analysts. 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 rose by about 2 basis points to 1.4626 percent in Asia hours after it touched a six-week low of 1.4150 percent overnight.
On Tuesday, traders favored safe havens and lifted the yen to a one month high, despite the quiet of the currency markets.
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 Pepperstone in Melbourne, said 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.
China's economic slowdown 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. Other clouds are also brewing, with a survey in Japan showing 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, and bitcoins hovering at $67,267 after hitting a record peak of $68,564 a day ago.