Asian Markets Swing as US Inflation Spikes See Rate Hike Bets Soar

HONG KONG, KOMPAS.com - Asian markets were mixed Thursday, July 14, as another forecast-busting US inflation print ramped up bets on a series of sharp interest rate hikes by the Federal Reserve, and other central banks race to tighten monetary policy.

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.

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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.

In Asian trade, Tokyo, Sydney, Wellington, Taipei, and Jakarta all rose but Hong Kong, Shanghai, Singapore, Seoul, Mumbai, Bangkok, and Manila down.