Asian markets sink on rate worries as US inflation surprises

Hong Kong – Asian markets sank in line with Wall Street on Friday after a sharper-than-expected jump in US wholesale prices dealt a blow to hopes for interest rate cuts.

The surprisingly large bump in February’s producer price index followed a forecast-beating read on consumer prices earlier in the week and overshadowed separate figures pointing to a slowdown in retail sales.

The reports also came after above-estimate data for January and will likely instill nervousness on trading floors ahead of the Federal Reserve’s next policy decision on March 19-20.

While officials are not expected to move on rates, their post-meeting statement will be pored over for an idea of their thinking, with many — including boss Jerome Powell — having warned they will only cut when confident inflation is under control.

The bank’s dot plot estimates for rates through the rest of the year will also be closely examined, with markets pricing in three cuts — in line with policymakers’ most recent forecasts.

Analysts said the latest figures suggested the personal consumption expenditures (PCE) deflator, the Fed’s preferred gauge of inflation, could come in higher than hoped.

All three main indexes on Wall Street ended in the red as the recent strong rally faded on rate-cut worries and profit-taking, with a jump in yields denting optimism and sending the dollar higher.

“Equity and bond bulls are staring at their calendars and drawing a ‘big red circle’ around the 20th of this month,” said Jose Torres of Interactive Brokers.

“Folks are concerned Powell may have to pull a dangerous U-turn during his ride on the monetary-policy highway. His dovish messaging since December has driven an intense loosening in financial conditions.”

Hong Kong shed around 1.8 percent — having enjoyed a strong run-up at the start of the year — while there were also losses in Tokyo, Sydney, Seoul, Singapore, Wellington, Taipei, Manila and Jakarta.

China’s decision not to cut interest rates also weighed on sentiment as authorities refuse to embark on a strong stimulus drive despite the economy struggling to recover and the property sector still in the doldrums.

Bitcoin was in retreat, having hit a fresh record high of $73,797 Thursday.

Oil held most of its gains, sitting around its highest levels since November, after the International Energy Agency forecast demand would pick up more than previously expected and reports said US stockpiles had fallen.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: DOWN 0.1 percent at 38,751.54 (break)

Hong Kong – Hang Seng Index: DOWN 1.8 percent at 16,658.65 

Shanghai – Composite: DOWN 0.3 percent at 3,030.68 

Dollar/yen: UP at 148.51 yen from 148.28 yen on Thursday

Euro/dollar: DOWN at $1.0875 from $1.0889

Pound/dollar: DOWN at $1.2734 from $1.2752

Euro/pound: UP at 85.40 pence from 85.36 pence

West Texas Intermediate: DOWN 0.1 percent at $81.17 per barrel

Brent North Sea Crude: DOWN 0.2 percent at $85.27 per barrel

New York – Dow: DOWN 0.4 percent at 38,905.66 points (close)

London – FTSE 100: DOWN 0.4 percent at 7,743.15 points (close)

— Bloomberg News contributed to this story —