Asian markets were mostly lower on Wednesday as a surprise surge in US inflation raised investor concerns over the direction of Federal Reserve policy.
They took their cue from Wall Street, where stocks retreated from records after data showed the biggest jump in US inflation in more than a decade.
The consumer price index (CPI) spiked a higher-than-expected 5.4 percent in the 12 months ended in June, not seasonally adjusted, the highest rate since August 2008.
The US central bank has said repeatedly that stiff increases in consumer prices will be transitory but investors will be keenly waiting to hear from Fed Chair Jerome Powell, who will testify in Congress on Wednesday and Thursday.
Powell likely will find himself defending the Fed’s pledge to continue providing stimulus to the US economy until there has been substantial progress on lowering unemployment and getting inflation to hold above two percent.
“The debate is centred around where will inflation settle when things normalise about a year from now — is it north of 2 percent or south of 2 percent?” Jimmy Chang, chief investment officer at Rockefeller & Co., told Bloomberg Television, adding he expected Powell to sound “fairly dovish”.
All three main US indices closed lower following the inflation data, with the Dow slipping 0.3 percent.
Asian markets followed Wall Street’s lead, with Tokyo slipping 0.2 percent, Hong Kong down 0.6 percent and Shanghai retreating 0.9 percent.
Seoul was 0.3 percent lower while Sydney was up 0.2 percent despite news that the city will be in virus lockdown for at least another two weeks as it struggles to bring a fast-spreading outbreak of the Delta coronavirus variant under control.
“The key question for the Fed and markets in general is whether the sustained lift in inflation seen over the past couple of months is still likely to be transitory, or will it be more persistent, warranting an earlier normalisation in Fed policy,” senior economist Tapas Strickland of National Australia Bank said in a note.
Oil prices edged lower in Asian trade, with Brent down 0.2 percent and West Texas Intermediate off 0.3 percent.
The International Energy Agency on Tuesday warned that prices were likely to remain volatile until OPEC+ nations reach a deal to raise output.
Demand surged last month as rising vaccination rates helped underpin robust economic activity but the IEA warned that Covid-19 remains a significant threat to oil demand growth in the near- to medium-term.
Key figures around 0245 GMT
Tokyo – Nikkei 225: DOWN 0.2 percent at 28,658.95
Hong Kong – Hang Seng Index: DOWN 0.6 percent at 27,785.40
Shanghai – Composite: DOWN 0.9 percent at 3,535.67
New York – DOW: DOWN 0.3 percent at 34,888.79 (close)
London – FTSE 100: FLAT at 7,124.72 (close)
Euro/dollar: DOWN at $1.1781 from $1.1787 at 2130 GMT Tuesday
Pound/dollar: UP at $1.3820 from $1.3810
Euro/pound: DOWN at 85.25 from 85.26 pence
Dollar/yen: DOWN at 110.51 from 110.62 yen
Brent North Sea crude: DOWN 0.2 percent at $76.31 per barrel
West Texas Intermediate: DOWN 0.3 percent at $75.02 per barrel