Asian markets drop on rate fears as US inflation runs hot

HONG KONG, China  –Asian markets sank Monday following a Wall Street selloff, as forecast-beating US inflation data reinforced expectations the Federal Reserve would continue to ramp up interest rates for some time.

The report on the personal consumption expenditures price index followed blockbuster jobs figures and data showing prices coming down slower than hoped.

This month’s readings have wiped out optimism that the Fed will be able to soon pause its monetary tightening and possibly cut borrowing costs before the end of the year.

Traders will be keeping a close eye on comments from bank officials this week.

“We have six voting members on the (policy board) scheduled to appear this week — ample opportunity for officials to air their views on the latest data and, more importantly, the implications for their policy outlooks,” said SPI Asset Management’s Stephen Innes.

“But given the rude health of the US economy and with inflation flames reigniting, it’s challenging to envision Fed commentary veering in anything but a more hawkish direction.

“Hence it could be difficult for the market to find much comfort this week unless the sentiment data surprises to the downside.”

Some figures have already suggested they are open to hiking by 50 basis points at the next gathering, and several said they saw room for further tightening after Friday’s data release.

All three main indexes on Wall Street ended deep in the red Friday, and Asia followed suit on Monday.

Hong Kong, Tokyo, Sydney, Shanghai, Seoul, Singapore, Manila, Jakarta, Mumbai, Bangkok and Wellington were all in the red.

“The clouds of uncertainty remain with us — the market’s consensus view that inflation would head lower through the year has clearly been challenged,” Chris Weston of Pepperstone Group said in a note.

The prospect of more Fed rate hikes sent the dollar surging against its peers Friday and it held those gains in Asian business, sitting at a two-year high versus the yen.

Adding to the yen’s weakness were comments Friday from the man expected to take over as head of the Bank of Japan indicating he will maintain an ultra-loose monetary policy for now.

That came even as data showed inflation at a four-decade high.

Kazuo Ueda told lawmakers again Monday that he considered the current policies in place to be correct.

“I think it’s appropriate for monetary easing to be continued,” he said.

“In order for policy to be revised, I think there needs to be a major improvement in the price trend.”