SYDNEY Asian markets got off to a shaky start on Monday as US stock futures took an early skid on rate worries.
A series of rate hikes and hawkish communication came against a backdrop of plummeting European activity, new plans for Russian energy bans and continued supply-side pressures, according to analysts at Barclays.
This leads to a gloomy prospect of persistent inflation forcing central banks to hike rates despite slowing growth. S&P 500 stock futures were leading the way with a drop of 1.0 percent, while Nasdaq futures fell 0.9 percent. The US 10 year bond yields went up to a new top of 3.15 percent.
The broadest index of Asia-Pacific shares outside Japan fell 0.3 percent, Japan's Nikkei 1.2 percent.
Investors were tense ahead of the US consumer price report due to Wednesday, where only a slight easing in inflation is forecast, and certainly nothing that will prevent the Federal ReserveFederal Reserve from hiking by at least 50 basis points in June.
Core inflation increased by 0.4 percent in April, up from 0.3 percent the previous month, even though the annual pace dips a bit due to base effects.
The annualized monthly change in core CPI was 5.6 percent in Q 1, according to analysts at ANZ. That is too high for the Fed and we think the FOMC won't relax about inflation until the core number moderates to around 0.2 percent m m on a sustained basis.
The Fed is not the only central bank facing inflation pressures. The guidance from the ECB is becoming more hawkish. In July, the Fed fund futures are priced for rates reaching 1.75 - 2.0 percent, from the current 0.75 - 1.0 percent, and will go up to around 3 percent by the end of the year.
The diary has full of Fed speakers this week, which will give them plenty of time to keep up with the hawkish chorus.
The US dollar was at a 20 year high on a basket of majors last week at 104.070 and was last trading firm at 103.820 Risk appetite is fragile and yield spreads continue to suggest further upside on the Dollar Index, said Sean Callow, senior FX strategist at Westpac.
With 104 already being probed and still potential for a run towards 107 multi-week, we look for continued demand for DXY on dips. The euro was stuck at $1.0530 and just a whisker above its recent lows of $1.0481, while the dollar was very much on control against the Japanese yen at 130.88 Oil prices went back a bit, while the Group of Seven nations committed on Sunday to ban or phase out imports of Russian oil.
Brent was quoted 63 cents lower at $111.76, while US crude lost 61 cents to $109.16 at the end of the day.
Gold was idling at $1,877 an ounce, having struggled to make any traction as a safe haven recently.