Asian shares tracked Wall Street lower on Thursday as sticky U.S. inflation forced markets to slash bets on how much Federal Reserve easing might come this year, a result that sent the dollar flying to a 34-year high against the beleaguered yen.
U.S. stock futures NQc1 ESc1 lost another 0.2% after Wall Street slid around 1% overnight, while regional bonds took a kicking following a 20-basis-point jump in Treasury yields overnight to their highest since November.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.7%. Japan's Nikkei .N225 dropped 0.8%.
China's blue chips .CSI300 eased 0.4%, and Hong Kong's Hang Seng index .HSI fell 1.1%, after data showed consumer prices in the world's second-largest economy rose by a muted 0.1% in March, missing expectations.
Data overnight showed U.S. inflation in March once again came in hotter than expected, decimating the chance of a rate cut in June. Core CPI advanced 0.4%, above forecasts of a 0.3% rise.
"This marks the third consecutive strong reading and means that the stalled disinflationary narrative can no longer be called a blip," said Seema Shah, chief global strategist at Principal Asset Management.
"In fact, even if inflation were to cool next month to a more comfortable reading, there is likely sufficient caution within the Fed now to mean that a July cut may also be a stretch, by which point the US election will begin to intrude with Fed decision making."
Fed minutes out overnight also showed that officials had begun worrying that inflation progress might have stalled before the March inflation data, with some raising the possibility that the current policy rate was not restrictive enough.
Investors, who had been hanging onto the expectation of a June cut, now see September as the most likely timing for the easing cycle to start. FEDWATCH
The total easing expected this year fell to just 42 basis points, lower than the Fed's own projection of 75 basis points. The chance of Fed not cutting at all this year rose to 13%, from 2.1% a day earlier, according to CME FedWatch.
Investors now await the U.S. producer price data and the European Central Bank policy meeting later in the day. The ECB is all but certain to keep borrowing costs at a record high but the focus is on whether officials would back a rate cut in June.
Bank of Canada kept its interest rate unchanged overnight, and the bank governor said a cut in June was possible if a recent cooling trend in inflation is sustained.
In currencies, the dollar was buoyant at a five-month high against its major peers at 105.17, having surged 1.1% overnight, the biggest daily jump in more than a year.
The greenback JPY=EBS also hit a 34-year high of 153.24 yen overnight, before easing 0.2% on Thursday to 152.86 yen as the risk of government intervention looms large now that the Japanese currency has weakened past the 152 level.
Japan's top currency diplomat, Masato Kanda, warned on Thursday that authorities would not rule out any steps to respond to disorderly exchange-rate moves.
Asian bonds extended their heavy sell-off in Treasuries. The 10-year Australian government bond yield AU10YT=RR jumped 13 basis points to 4.243%, highest since mid-February, while the 10-year Japanese bond yield JP10YTN=JBTC rose 4 bps to 0.83%, highest since early November.
U.S. Treasuries, meanwhile, steadied on Thursday. The benchmark ten-year yield US10YT=RR was flat at 4.5395%, having surged 18 bps overnight, and the two-year yield US2YT=RR held at 4.9604%, after a rise of 22 bps the previous session.
In commodities, oil managed to hold gains after advancing more than 1% following an Israeli strike that killed three sons of a Hamas leader, fuelling worries that ceasefire talks might stall.
Brent LCOc1 rose 0.1% to $90.62 a barrel, and U.S. crude CLc1 was 0.1% higher at $86.35 per barrel.
Gold prices XAU= gained 0.3% to $2,338.79 per ounce, having lost 0.8% overnight in the face of a strong U.S. dollar.
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