Dives into US inflation escalation, oil bounces off around $85.00

  • Asian stocks have fallen like a house of cards amid rising US inflation.
  • Given the higher core CPI, the Fed will continue the pace of rate hikes.
  • The depreciating yen is causing problems for import-oriented companies.

Markets in the Asian domain have witnessed an intense sell-off at opening as the US Dollar Index (DXY) has regained auction territory around the psychological resistance of 110.00. Asian stocks are in a bloodbath as a higher US consumer price index (CPI) has sparked expectations of a massive rate hike by the Federal Reserve (Fed).

At press time, Japan’s Nikkei225 plunged 2.50%, China’s A50 fell nearly 1% and Hang Seng plunged 2.64%.

The US CPI came in higher at 8.3% than expectations of 8.3%, but remained lower than the previous release of 8.5%. Inflation is on the decline thanks to falling gasoline prices, but the decline does not justify a “relaxation mode” for Federal Reserve (Fed) policymakers. The arduous work of Fed policymakers will now become even more arduous as core CPI, excluding food and oil prices, has risen to 6.3% from expectations of 6.1% and 40 basis points (bps) higher than the previous publication.

In Tokyo, the continuously depreciating yen is causing problems for the Japanese government. Companies that rely heavily on imports to meet their input requirements have to pay more. In addition, import-dependent companies do not pass on the impact of expensive input prices, which affect their operating margins.

On the oil front, oil prices recovered after falling to near the critical support of $85.00. Black gold is expected to remain in the throes of bulls as European countries look to consume oil rather than energy to meet demand. Energy prices do not heave a sigh of relief and are aiming higher for the winter season.

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