SINGAPORE- Asian stocks were a sea of red on Thursday and bonds slid on bets global interest rates would stay higher for longer, as investors looked to key inflation readings at the end of the week for further clues on the future path of monetary policy.
The dollar rode US Treasury yields higher while commodity prices came under pressure on renewed expectations that the Federal Reserve is unlikely to cut rates any time soon.
The latest halt in the global risk rally has come on the back of data pointing to lingering inflationary pressures across major economies.
“Hotter and stickier than expected global inflation appears to be taking the air out of asset markets,” said Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho Bank. “Equities slid and bonds swooned, and USD swaggered.”
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.2 percent, tracking a negative lead from Wall Street and extending its 1.6 percent decline from the previous session.
Japan’s Nikkei slumped 1.3 percent , while US and European futures similarly fell. EUROSTOXX 50 futures eased 0.36 percent while S&P 500 futures declined 0.6 percent .
Nasdaq futures slid 0.7 percent .
A Fed survey on Wednesday showed US economic activity continued to expand from early April through mid-May but firms grew more pessimistic about the future while inflation increased at a modest pace.
Across the Atlantic, data the same day showed German inflation rose slightly more than forecast to 2.8 percent in May, ahead of the wider euro zone bloc’s reading on Friday.
The main highlight of the week for markets, however, is Friday’s US core personal consumption expenditures (PCE) price index report – the Federal Reserve’s preferred measure of inflation. Expectations are for it to hold steady on a monthly basis.
“If we look at data that has led us to this point, I have a hard time believing a softer-than-expected PCE report will arrive on Friday,” said Matt Simpson, senior market analyst at City Index.
“From this perspective, PCE not ticking higher could be a welcome surprise. But should it heat up further from sticky levels, appetite for risk will be taken out the back for a good kicking.”
