SYDNEY (Businesshala) – A jump in oil and sugar factory prices in Asian stock markets on Wednesday raised concerns that a warmer US inflation reading could renew pressure on policymakers to raise interest rates.
US crude futures rose 1% to a two-week high of $84.97 a barrel in early trade and Brent futures made a one-week top of $85.35. [O/R]
Factory gate prices in China are up 13.5% year-on-year in October, data shows, warning of increased pressure in the supply chain for global consumers.
MSCI’s broadest index of Asia-Pacific shares outside Japan and Japan’s Nikkei each fell 0.2% and halted a protracted rally on Wall Street overnight, with the Nasdaq recording its first decline in a dozen sessions. [.N]
S&P 500 futures fell 0.2% in morning trading.
US data due by 1330 GMT shows consumer prices expected to rise 5.8% year-over-year and even Federal Reserve officials Neil Kashkari and Mary Daly admit it is higher than they expected. Time is running hot.
“Coming from them, I think there is now little doubt officially within (the Fed) that the risks surrounding inflation have become much greater than they were before,” NatWest Markets strategists said in a note.
Long-term bonds were up on Tuesday, flattening the Treasury yield curve, as investors bet on hikes next year or growth and bucking inflation in the years ahead. [US/]
“A firm (CPI) reading could add a little more fuel to the flattening,” said analysts at NatWest. “But I would argue that at this stage, a weak CPI number will not be enough to make the markets think that the Fed will hold back.”
Treasuries fell slightly in Asia hours, raising the benchmark 10-year yield by nearly 2 basis points to 1.4626%, as it touched a six-week low of 1.4150% overnight.
Currency markets have been fairly calm, but traders favored a safe haven on Tuesday and pushed the yen to a one-month high.
The Japanese currency was at 112.84 per dollar on Wednesday and risk-sensitive currencies such as the Australian dollar were under pressure, with its 50-day moving average testing support for the Australian at $0.7374. [FRX/]
“The dollar will be sensitive to moves in the 2-5 year portion of the US Treasury curve,” said Chris Weston, head of research at broker Pepperstone in Melbourne.
“I think we will need to see a 0.8% (monthly US CPI) print for the dollar index to break above the 94.50 range,” he said. The index was last at 93.997.
China’s economic slowdown is also lingering in investors’ minds, especially as a credit crisis ripples through the sprawling property industry.
Bonds in the sector faced a fresh uptrend on Tuesday, even with a sell-off in investment-grade loans.
“The market is now driven more by fear rather than logic,” said analysts at JPMorgan. “The evaluation has factored in (worst case).”
Other clouds are moving as well, with a survey in Japan showing that manufacturers’ business confidence has fallen to a seven-month low and Tesla stock, a bit of a gauge of retail investor sentiment, is faltering.
The carmaker, which has been the poster-stock of equities’ thumping rally from the lows of the pandemic, suffered the stock’s sharpest fall in 14 months on Tuesday, as traders prepared for a potential sell-off from company chief Elon Musk. .
Gold and bitcoin have been the primary beneficiaries of the market turmoil, with gold rising 3.5% to $1,829 an ounce in a week and bitcoin hovering at $67,267 after hitting a record high of $68,564 the day before.