Asian markets plummet ahead of inflation data

A currency trader watches monitors at the foreign exchange dealing room in a local bank’s headquarters in South Korea’s capital Seoul on Thursday, Oct. 13, 2022. AP PHOTO 

HONG KONG: Equities fell in Asia and the dollar maintained its strength on Thursday ahead of the release of crucial United States inflation data that could determine the pace of Federal Reserve (Fed) interest rate hikes.

The release of the September report comes a day after minutes from the US central bank’s latest policy meeting showed officials’ determination to win their battle against runaway prices by ramping up borrowing costs, though they did note the risk to the economy that posed.

Investors are growing increasingly worried that the strict monetary tightening campaign, including three bumper rate hikes in succession, will plunge the US into a recession.

While there are hopes for signs of a slowdown, traders have taken to the sidelines in case of more volatility.

On Wednesday, figures showed wholesale inflation rose a forecast-beating 0.4 percent.

After another day of losses on Wall Street, Asia was again in the red, with Hong Kong, Singapore and Seoul off more than 1 percent.

Tokyo, Shanghai, Mumbai, Wellington and Taipei were also off.

“The Fed needs data to start finding an off-ramp,” Carol Schleif of BMO Family Office told Bloomberg Television. “That’s a tough market to be in. Until we get a bunch more data, markets will have to figure out how to find their footing.”

Minutes from the Fed’s September meeting suggested it would press on with a fourth straight 0.75-percentage-point lift next month, with policymakers noting a slowdown of growth and the jobs market would be “required” to tame inflation, adding that prices remained “unacceptably high.”

They also pointed out that prices had “not yet responded” to the previous tightening.

Bank officials had for months stuck to a line that they would continue ramping up rates and hold them until they were satisfied they have cooled inflation.

But the minutes said “several participants noted that, particularly in the current highly uncertain global economic and financial environment, it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook.”

But the cost of not doing enough to tackle prices outweighed the cost of doing too much, they added.

“The Fed remains purposefully driven to tighten monetary policy further into restrictive territory given the rather gradual cooling of economic activity and slow inflation response,” said Gregory Daco of Ernst & Young.

But “the balance of risks is rapidly shifting,” he added. “Elevated global economic and financial market uncertainty will make it essential for the Fed to calibrate its policy response.”

They expect to lift rates to about 4.6 percent in 2023, according to the median estimate, from the current 3 percent to 3.25 percent.

Expectations for even more tightening kept the dollar elevated across the board, and it hit a fresh 24-year high near 147 yen, more than 1 yen above the point at which Japanese authorities last month intervened to protect their currency.

Still, sterling held most of the gains it enjoyed on Wednesday, fueled by expectations that the Bank of England would unveil a huge rate hike next month in the wake of volatility in the United Kingdom’s financial markets.

Oil prices were broadly flat after another drop on Wednesday following a report from the industry-funded American Petroleum Institute indicating a huge jump in US stockpiles, suggesting weakening demand.

Meanwhile, the Organization of the Petroleum Exporting Countries trimmed its estimate for growth in demand this year and next by half a million barrels a day.