SINGAPORE: Stocks and bonds struggled in Asia on Wednesday while the U.S. dollar rose as investors worried about inflation and the hit that containing it with rate rises will bring to global growth.
Shanghai emerged blinking from two months of lockdown but as data showed steep falls in factory activity across Asia from the withering of China's demand, relief was short-lived.
MSCI's broadest index of Asia-Pacific shares outside Japan was dragged 0.7% lower by a 1% drop for Hong Kong's Hang Seng index. Japan's Nikkei rose 0.6%.
S&P 500 futures were last up 0.4%, but had given up larger early gains. Euro STOXX 50 futures rose 0.5%, as did FTSE futures.
Soaring food and energy costs drove eurozone inflation to a record-high 8.1% in May, Tuesday figures showed, stoking concern about rate rises not just in Europe but globally.
"Markets are pricing in rate hikes in June from the UK, U.S., Sweden, Australia and Canada," said Societe Generale analyst Kit Juckes.
"The more the markets focus on the inflation data and central bank action, the more likely it is that we have a bumpy start to the summer in risk sentiment and a strong one for the dollar."
The dollar has arrested a three-week slide and made a two-week high of 129.23 yen late in the Asia session. It rose on the euro, sterling, Aussie and yuan and last traded at $1.0708 per euro and $0.7170 on the Aussie.
Two-year German bund yields hit their highest in over a decade on Tuesday and benchmark 10-year Treasury yields rose 10 basis points (bps). They were steady at 2.8694% late in Tokyo trade.
The Bank of Canada is expected to raise its benchmark target rate 50 bps to 1.5% when it meets later in the day.
St. Louis Federal Reserve President James Bullard and New York Fed President John Williams are also due to speak on Wednesday and will be watched for clues on the outlook.
GYRATIONS
The U.S. Federal Reserve begins shrinking asset holdings built up during the pandemic on Wednesday. Traders expect it will raise rates by 50 bps at meetings this month and next and they are unsure and increasingly worried about after that.
"We're in this kind of twilight zone now where it's just very difficult to get a handle on what the Fed are going to do after the July meeting," said Bank of Singapore analyst Moh Siong Sim.
"Depending on who says what and how the data plays out there will be a lot of gyrations over the next few weeks."
Uncertainty also looms over the shape of China's recovery from lockdown. Joggers came back to their stamping grounds on the banks of Shanghai's Huangpu River, but beat cops wore full hazmat suits and nerves about a return to lockdown ran high.
Stocks in Hong Kong and Shanghai slipped.
In commodity markets oil was knocked from an almost three-month high on Tuesday after the Wall Street Journal reported that oil producing nations were considering excluding Russia from a production deal, paving the way for extra output.
Brent crude futures steadied at $116.09 a barrel.
The stronger dollar pushed spot gold 0.3% lower to $1,830 an ounce. Bitcoin clung to early-week gains at $31,500. - Reuters
