- US CPI is rising at the fastest pace since 1[ads1]990, and markets are rippling
- Broad-based inflation challenges the Fed’s “transient” narrative
- The dollar reaches 15-1 / 2-month highs at stake for previous interest rate increases
- Treasury rates jump while breakeven rates rise to record highs
- Australia is leading a downturn in the Asian stock markets
TOKYO, Nov. 11 (Reuters) – Fear of inflation pressured Asian stocks and strengthened the dollar on Thursday after overnight data showed that US consumer prices rose at the fastest pace since 1990 last month, reinforcing the argument for a faster tightening of Federal Reserve policy.
Nominal US government interest rates shot higher, with the benchmark index for the 10-year note rising the most since February, while real interest rates, which take inflation into account, fell to record lows.
Gold jumped to a five-month high and bitcoin broke a record when investors applied for inflation hedging.
The oil retreated sharply from nearly seven years after US President Joe Biden said his administration was looking for ways to reduce energy costs.
MSCI’s broadest index of Asia-Pacific equities outside Japan (.MIAPJ0000PUS) was down 0.85%, led by a fall of 1.19% in Australia’s benchmark index (.AXJO).
Chinese blue chips (.CSI300) fell 0.09%.
Japan’s Nikkei (.N225) countered the trend by rising 0.24%, supported by the yen’s weakness against a resurgent dollar and then US stock futures ticking slightly.
Overnight, however, the S&P 500 (.SPX) fell 0.82%, the worst day in more than a month. It marked the first back-to-back declines in a month, after the index closed at record highs to start the week.
The dollar index, which measures the currency against six major peers including the yen and the euro, hovered just below the high reached on Wednesday at 94,905, a level not seen since July last year.
The dollar added 0.13% to 114.04 yen, up from as low as 112.73 at the start of the week.
The US consumer price index rose by 6.2% year-on-year, with petrol leading to a broad increase that contributed to signs that inflation could remain uncomfortably high well into 2022 amid tight-knit global supply chains. read more
Inflationary pressures are also brewing in the labor market, with other data on Wednesday showing that the number of Americans applying for unemployment benefits fell to a minimum in 20 months.
Both the White House and the Fed have argued that prices will fall when the bottlenecks in supply begin to decline, and the central bank did not repeat until last week that high inflation is “expected to be temporary” as decision-makers called for patience.
“The Fed’s determination is facing a trial period,” Rodrigo Catril, a senior currency strategist at the National Australia Bank in Sydney, wrote in a customer note.
“Supply constraints may well be temporary, but the increase in core drivers is increasing the pressure on the Fed to trigger a monetary policy response.”
The money market is now pricing a first Fed rate hike by July.
Benchmark 10-year government interest rates jumped the most in seven weeks to as high as 1.592% on Wednesday. The Treasury market is closed globally on Thursday for a US holiday.
Meanwhile, the return on 10-year government inflation-protected securities (TIPS) fell sharply to as low as a staggering -1.243% before drifting higher during the session.
Inflation expectations rose, and five-year breakeven inflation rose to a record high of 3.113%
Volatility spread to other markets, with the CBOE Volatility Index (.VIX), Wall Street’s so-called fear meter, reaching its highest level in almost a month.
Spot gold traded around $ 1850 after rising as high as $ 1868.20 overnight for the first time since mid-June.
Bitcoin originally jumped to a new record high of $ 69,000 before retreating to the last trade just under $ 65,000.
US West Texas Intermediate (WTI) oil rose 25 cents to $ 81.59 a barrel, but peaked overnight at $ 84.97 and a seven-year high of $ 85.41 at the end of last month.
Brent oil futures rose 30 cents to $ 82.94 a barrel, but down from as high as $ 85.50 on Wednesday and the October high of $ 86.70 in three years.
Editing Lincoln Feast
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