Asian stock markets fell following the release of higher-than-expected US inflation data, leading to a drop in US stocks.
- The hotter-than-expected US inflation data led to a drop in Asian stocks and a warning from Japan about rapid movements in the foreign-exchange market.
- The consumer price index report caught investors off guard, impacting expectations for US interest-rate cuts and causing a surge in the stock market’s “fear gauge”.
- The dip in gold prices and contrasting outlooks from OPEC and the IEA contributed to a mixed market sentiment alongside the steady rise in oil prices.
The inflation data dampened expectations for early US interest rate cuts, leading to a drop in the odds of a rate cut in May.
The Golden Dragon index of US-traded Chinese companies dropped 2.7% on Tuesday, marking its largest decline in nearly a month. Trading is expected to resume in Hong Kong while China remains closed for the Lunar New Year holidays. Meanwhile, swap traders lowered their expectations for a Fed cut before July, and the stock market’s “fear gauge” – the VIX – experienced its biggest surge since October.
The CPI data disappointed investors after a recent decrease in price pressures, leading to reduced expectations for rate cuts this year. This supports the wait-and-see approach emphasized by Jerome Powell and other Fed speakers. The likelihood of a May cut decreased to about 32% from 64% before the inflation data, with less than 90 basis points expected this year.
