Asian markets followed in the footsteps of Wall Street on rate worries, ECB now in focus

As stubborn U.S. inflation prompted markets to cut predictions on how much the Federal Reserve may soften this year, Asian equities followed Wall Street lower on Thursday, sending the dollar shooting to a 34-year high versus the struggling yen.

Europe is expected to begin modestly ahead of the European Central Bank meeting, with no movement in EUROSTOXX 50 futures. Although a rate decrease by the ECB in June is unlikely, it is nevertheless expected that rates will remain unchanged.

Data indicated that consumer prices in the second-largest economy in the world increased by a meek 0.1% in March compared to a 0.7% increase in February, but Chinese equities managed to record modest gains despite this.

U.S. stock futures saw no movement following an overnight 1% decline on Wall Street. After rates increased by 20 basis points to their highest positions since November, Treasury bonds also stabilised.

The likelihood of a rate drop in June was severely damaged by data released overnight that revealed U.S. inflation in March coming in hotter than predicted once more. Core CPI increased by 0.4%, above estimates of a 0.3% increase.

Investors now believe that September is the most likely month for the easing cycle to begin, having previously held onto the hope of a June cut.

Compared to the Fed's own estimate of 75 basis points, the total amount of easing anticipated this year dropped to just 42 basis points. According to CME FedWatch, the likelihood that the Fed will not make any cuts this year has increased to 13% from 2.1% one day earlier.

The Fed minutes released also revealed that policymakers had begun to express concerns about the likelihood that inflation progress had stopped prior to the release of the March inflation statistics, with some speculating that the existing policy rate might not have been stringent enough.

The Bank of Canada did not alter its interest rate yesterday, and its governor said that a reduction in June would be feasible should the recent trend in inflation continue to decline.

(Sources: investing.com, reuters.com)