Asian shares fall as investors brace for inflation report

People walk past a screen displaying the Hang Seng stock index outside Hong Kong Exchanges, in Hong Kong, China July 19, 2022.

TOKYO (Reuters) – Stocks fell across Asia and the dollar steadied on Wednesday as investors were reluctant to make moves ahead of the release of U.S. inflation data that could point to the Federal Reserve’s appetite for more aggressive rate hikes.

The Consumer Price Index (CPI) report will be released at 1230 GMT, with markets watching for signs that inflation eased in July despite last week’s unexpectedly strong U.S. jobs numbers.

The market is currently pricing in a 69.5% chance of a 75 bps rate hike at the Fed’s next meeting FEDWATCH. Economists polled by Reuters expect the CPI to show year-on-year headline inflation USCPNY=ECI of 8.7%, far above the Fed’s target of 2% but down from last month’s red-hot 9.1%.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 1.31%, while Japan’s Nikkei .N225 extended losses from the previous day and closed down 0.65%.

South Korea’s KOSPI .KS11 lost 0.95%, Australia’s AXJO .AXJO dropped 0.5%, and Taiwan’s TAIEX .TWII fell 0.74%.

European stock futures pointed to further losses ahead of markets opening. FTSE 100 futures FFlc1 were down 0.31%, and Euro Stoxx 50 futures STXEc1 were down 0.38%.

“I don’t think that we are through the bear market woods yet – recession risks loom and I don’t think the Fed is done with its aggressive belt tightening,” said David Chao, a global market strategist for Asia Pacific ex-Japan at Invesco.

“I don’t think markets have fully discounted these variables. This week’s inflation data will certainly give us more clarity of the Fed’s near-term policy outlook.”

The slips in Asian markets tracked Wall Street, which closed on Tuesday with all three major indices down.

The S&P 500 .SPX fell 0.42%, the Dow Jones Industrial Average .DJI dropped 0.18%, and the Nasdaq Composite .IXIC lost 1.19%.

The dollar reversed losses overnight and was trading flat in Asia. The dollar index =USD, which measures the safe-haven greenback against six major peers, was at 106.3.

“A strong CPI print this week could mean the Fed is back to its aggressive rate hiking path, which would re-strengthen the USD,” said Chao.

Oil prices fell after an overnight surge petered out. Brent crude futures LCOc1 were down 78 cents to $95.53 a barrel, while U.S. West Texas Intermediate (WTI) crude CLc1 was down 56 cents to $89.94.

Gold XAU= also pared gains and was down 0.33% at $1,788.30 an ounce. It briefly broke through the $1,800 barrier overnight for the first time in more than a month.

The cryptocurrency bitcoin, which often tracks tech stocks, was down 1.15% at $22,880.