San Francisco Frontiers - Asian markets swing as US inflation spikes see rate hike bets soar

The keenly awaited consumer price index came in at a blistering 9.1 percent in June, the highest since November 1981, as energy costs continued to rocket on the back of rising demand and weak supplies partly caused by the Ukraine war.

Months of soaring inflation have rocked global markets as central banks, fearing prices will run too high, are forced to quickly withdraw the ultra-cheap cash policies put in place at the start of the pandemic.

But that has fanned fears that policymakers could go too far and tip leading economies into recession.

Wednesday's CPI reading was followed by speculation the Fed could hike borrowing costs a full percentage point at its next meeting this month, with some top officials refusing to rule it out just yet.

The bank last month unveiled its first 75 basis point rise for three decades and is one of dozens to hike rates. Singapore and the Philippines became the latest to tighten policy on Thursday, a day after Canada, New Zealand, Chile and South Korea announced hikes.

The inflation reading followed Friday's surprise spike in US jobs creation, which suggested the world's top economy was withstanding the rate hikes, giving the Fed more room for further increases.

"Stubbornly high inflation increases the risk that the (Fed) continues to hike aggressively and triggers a recession," said Kristina Clifton at Commonwealth Bank of Australia, adding that that belief was picking up momentum on trading floors.

- 'Glimmers of hope' -

And Federated Hermes senior economist Silvia Dall’Angelo said the reading suggested "inflation will likely remain sticky at elevated levels for the balance of the year, as external and domestic price pressures continue to pass through to consumer prices".

She added that while commodity prices were off their recent peaks, they were still elevated and were at risk of further supply shocks.

With the jobs market still strong and inflation resiliently high, "the Fed will likely resort to hawkish rhetoric and further front-loading of tightening at least until late autumn, as it fights to maintain its credibility", she said.

Wall Street's three main indexes ended in the red, though they were off their intra-day lows on hopes the Fed will see results by the end of the year and begin to cut rates in the new year.

Asia was mixed, with Tokyo, Sydney, Wellington, Taipei and Jakarta all up but Hong Kong, Shanghai, Singapore, Seoul, Mumbai, Bangkok and Manila down.

London, Paris and Frankfurt opened lower.

"The more prolonged inflation remains high, the more central banks will need to tighten, and the slower growth will become," said SPI Asset Management's Stephen Innes.

But while there is a general sense of gloom, eToro global markets strategist Ben Laidler said there were some "glimmers of hope" in the CPI data.

"Recent falls in super-charged oil and agricultural prices, along with a decline in airfares, provide hope we are near the peak of headline inflation," he said in a note, adding that inflation was "the most important number in global markets right now".

"But early signs of easing inflation pressure give some hope of an end to dramatic interest rate hikes and stronger financial markets by Christmas."

The Fed's drive to tighten monetary policy continues to send the dollar higher, and on Wednesday it finally broke parity with the euro before easing slightly.

Still, an energy crisis in the eurozone and the European Central Bank's decision to move slower in lifting rates, has led commentators to forecast the single currency could fall to as low as $0.95.

The greenback also broke the 138 yen mark for the first time since late 1998 as the Bank of Japan refuses to shift from its ultra-loose monetary policies to support the country's torpid economy.

- Key figures at around 0720 GMT -

Tokyo - Nikkei 225: UP 0.6 percent at 26,643.39 (close)

Hong Kong - Hang Seng Index: DOWN 0.4 percent at 20,723.96

Shanghai - Composite: DOWN 0.1 percent at 3,281.74 (close)

London - FTSE 100: DOWN 0.1 percent at 7,152.29

Euro/dollar: DOWN at $1.0005 from $1.0061 Wednesday

Pound/dollar: DOWN at $1.1837 from $1.1893

Euro/pound: DOWN at 84.54 pence from 84.59 pence

Dollar/yen: UP at 138.74 yen from 137.36 yen

West Texas Intermediate: DOWN 0.2 percent at $96.10 per barrel

Brent North Sea crude: UP 0.1 at $99.63 per barrel

New York - Dow: DOWN 0.7 percent at 30,772.79 (close)

A.Clark--SFF