Following the release of US inflation data that surpassed expectations, Asian stock markets are poised for initial declines, indicating a potential prolonged period of elevated interest rates by the Federal Reserve.
Equity futures across Japan, Australia, and Hong Kong experienced a downturn, reflecting the previous day's losses on Wall Street. The S&P 500 and Nasdaq 100 saw declines of 1% and 0.9%, respectively, with further decreases noted in early trading within Asia.
The US dollar saw an uptick as yields on Treasury notes increased, with the two-year yield jumping 23 basis points and the 10-year yield rising 18 basis points, surpassing 4.5% for the first time since November. Yields on 10-year notes in Australia and New Zealand also experienced significant increases early on.
This movement was largely driven by the core consumer price index in the US, which excludes food and energy costs, rising 0.4% from February, exceeding the anticipated 0.3% increase for the third consecutive month.
Market participants are now adjusting their expectations for the Federal Reserve, predicting only two rate cuts this year, a reduction from the previously forecasted three cuts based on the Federal Reserve's dot plot and a significant shift from the six cuts expected at the year's start.
Experts like Greg McBride from Bankrate and Torsten Slok from Apollo Global Management suggest that financial conditions will continue to support growth and inflation, indicating that the Federal Reserve's battle against inflation is far from over, with interest rates expected to remain high.
Former Treasury Secretary Lawrence Summers also highlighted the possibility of an increase in rates as the next move by the Federal Reserve, estimating this likelihood to be between 15% and 25%.
In the meantime, Asia awaits the release of key economic data, including inflation expectations in Australia, consumer and producer prices in China, and trade figures from the Philippines, noting that markets in several Asian countries will be closed.
The Japanese yen saw a slight increase after dropping to its lowest level since 1990 against the dollar, sparking speculation about potential intervention by Japanese authorities to support the currency.
Oil prices have surged amidst growing concerns over potential conflicts in the Middle East, with West Texas Intermediate crude prices slightly increasing after a more than 1% rise on Wednesday.
This week, attention is also on several key events, including China's producer and consumer price index release, the Eurozone's European Central Bank rate decision, US initial jobless claims, and speeches by Federal Reserve officials, alongside earnings reports from major banks.
