Asia: Markets fall on US inflation concerns

[HONG KONG] 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 per cent 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.

Mr 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 per cent or south of 2 per cent?" Jimmy Chang, chief investment officer at Rockefeller & Co, told Bloomberg Television, adding he expected Mr Powell to sound "fairly dovish".

All three main US indices closed lower following the inflation data, with the Dow slipping 0.3 per cent.

Asian markets followed Wall Street's lead, with Tokyo slipping 0.2 per cent, Hong Kong down 0.6 per cent and Shanghai retreating 0.9 per cent.

Seoul was 0.3 per cent lower while Sydney was up 0.2 per cent 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 per cent and West Texas Intermediate off 0.3 per cent.

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.

AFP