Stocks dipped in Asia on Wednesday following a Wall Street retreat and caution ahead of US inflation data that will shape investor expectations for further Federal Reserve interest-rate hikes. Equities fell in Japan, South Korea and Australia, while US contracts wavered following a drop in the S&P 500 for a fourth session. Micron Technology Inc. became the latest chipmaker to warn about slowing demand, fanning economic concerns and spurring a slide in the technology-heavy Nasdaq 100. Treasury yields and a dollar gauge edged up, crude oil slipped closer to $90 a barrel and both gold and Bitcoin were on the back foot.
The two-year Treasury rate exceeds the 10-year by nearly 50 basis points. The inversion, around deepest since 2000, is viewed as a sign of a looming recession under the Fed’s monetary-tightening campaign to curb inflation. S&P 500 has yet to reclaim long-term trendline while resistance turns to suppor. A report Wednesday is expected to show headline US consumer-price inflation cooled but stayed elevated in July, while the core reading may have quickened on an annual basis. How the figures affect views on Fed tightening will be key for risk sentiment.
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“The FOMC will need to make sure inflation moves back towards target sustainably before contemplating pausing its tightening cycle,” Carol Kong, a strategist at Commonwealth Bank of Australia, wrote in a note. “A strong inflation outcome today will likely reinforce the FOMC is still some way away from that point yet, and see markets readjust higher their expectations for US interest rates.” Federal Reserve Bank of St. Louis President James Bullard said the Fed will be prepared to hold interest rates “higher for longer” should inflation continue to surprise to the upside.
“The greater risk is the Fed continues to push hard” and that “we see that yield curve continue to invert,” Kathy Jones, chief fixed income strategist at Charles Schwab & Co., said on Bloomberg Television. She added a strong US inflation print could feed into expectations for a 75 basis-point Fed hike in September.
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In China, consumer price inflation probably held steady at a relatively high level by recent standards amid a pickup in food prices, according to Bloomberg Economics.