Asian markets teetered on Thursday as more forecast-wrecking US inflationary pressures increased bets on a rapid series of sharp rate hikes that traders hope can be quickly reversed once prices are brought under control.
The much-anticipated consumer price index hit a staggering 9.1 percent in June, the highest since November 1981, as energy costs continued to soar due to rising demand and weak supplies, caused in part by the Ukraine war.
Months of rising inflation have rattled global markets as fears of excessive prices forced central banks to quickly withdraw ultra-cheap cash policies introduced at the start of the pandemic.
But that has stoked fears that policymakers are going too far and plunging leading economies into recession.
Wednesday’s CPI reading was followed by speculation that the Fed could hike borrowing costs by a full percentage point at its next meeting this month, with some senior officials refusing to rule out the possibility already.
The bank announced its first 75 basis point hike in three decades last month and is one of dozens to hike rates. Canada, New Zealand and South Korea announced hikes on Wednesday.
The inflation data followed Friday’s surprise jump in US job creation, which suggested the world’s leading economy was resilient to rate hikes, giving the Fed more leeway for further hikes.
“Stubbornly high inflation increases the risk that the (Fed) will continue to hike aggressively and trigger a recession,” said Kristina Clifton of the Commonwealth Bank of Australia, adding that this belief was gaining momentum on trading floors.
And Silvia Dall’Angelo, chief economist at Federated Hermes, said the reading suggests “inflation is likely to remain at elevated levels for the remainder of the year as external and domestic price pressures continue to spill over into consumer prices.”
She added that while commodity prices are below their recent highs, they are still elevated and there is a risk of further supply shocks.
With the job market still strong and inflation resiliently high, “the Fed is likely to resort to hawkish rhetoric and frontload further tightening, at least until late autumn, as it struggles to maintain credibility,” she said.
Wall Street’s three main indices ended in the red, although they retreated from their intraday lows on hopes the Fed will see results by the end of the year on a move to cut rates in the new year.
– “Glimmer of Hope” –
Asia was mixed, with Tokyo, Sydney, Wellington, Taipei and Jakarta all at the top, but Hong Kong, Shanghai, Singapore, Seoul and Manila at the bottom.
While there is a general sense of gloom, eToro’s global markets strategist Ben Laidler said there were some “glimmers of hope” in the CPI data.
“The recent decline in inflated oil and farm prices, along with a drop in airfares, gives hope that we are nearing the peak in headline inflation,” he said in a note, adding that inflation “was the most important number in global markets “Right now”.
“But early signs of easing inflationary pressures give hope that dramatic rate hikes and stronger financial markets will end by Christmas.”
The Fed’s effort to tighten monetary policy continues to push the dollar higher, and it finally broke through parity against the euro on Wednesday before easing slightly.
Still, an energy crisis in the euro zone and the European Central Bank’s decision to slow rate hikes have prompted commentators to forecast the single currency could fall as low as $0.95.
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: up 0.7 percent at 26,664.20 (breakthrough)
Hong Kong – Hang Seng Index: down 0.2 percent at 20,758.19
Shanghai — Composite: down 0.1 percent at 3,281.83
Euro/Dollar: DOWN at $1.0025 from $1.0061 on Wednesday
Pound/dollar: DOWN at $1.1870 from $1.1893
Euro/Pound: DOWN at 84.47p from 84.59p
Dollar/yen: up at 138.00 yen from 137.36 yen
West Texas Intermediate: FLAT at $96.30 a barrel
North Sea Brent Crude: FLAT at $99.57 a barrel
New York – Dow: down 0.7 percent at 30,772.79 (close)
London – FTSE 100: down 0.7 percent at 7,156.37 (close)
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