Asian markets drop as traders brace for key US inflation data

Equities fell in Asia and the dollar maintained its strength Thursday ahead of the release of US inflation data that could determine the pace of Federal Reserve interest rate hikes.

The release of the September report comes a day after minutes from the central bank's latest policy meeting showed officials determined to win their battle against runaway prices by ramping up borrowing costs, though they did note the risk to the economy that posed.

Investors are growing increasingly worried that the strict monetary tightening campaign -- including three bumper rate hikes in succession -- will plunge the United States into recession.

While there are hopes for signs of a slowdown, traders have taken to the sidelines in case of more volatility.

On Wednesday, figures showed wholesale inflation rose a forecast-beating 0.4 per cent.

After another day of losses on Wall Street, Asia was again in the red with Hong Kong, Singapore, and Seoul off more than one per cent.

Tokyo, Shanghai, Mumbai, Wellington, and Taipei were also off.

London opened lower with Frankfurt and Paris.

"The big rise in core prices would appear to suggest that inflation is likely to be much stickier over the next few months that markets had originally been hoping," said CMC Markets analyst Michael Hewson.

This, he added, was "adding to the risk we could see the Federal Reserve not only be much more aggressive on rate hikes, but keep those rates higher for longer".

Minutes from the Fed's September meeting suggested it will press on with a fourth straight 0.75 percentage-point hike next month, with policymakers noting a slowdown of growth and the jobs market would be "required" to tame inflation, adding that prices remained "unacceptably high".

They also pointed out that prices had "not yet responded" to the previous tightening.

Bank officials had for months stuck to a line that they will continue ramping up rates and hold them until they were satisfied they have slain inflation.

But the minutes said "several participants noted that, particularly in the current highly uncertain global economic and financial environment, it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook".

However, they said the cost of not doing enough to tackle prices outweighed the cost of doing too much.

"The Fed remains purposefully driven to tighten monetary policy further into restrictive territory given the rather gradual cooling of economic activity and slow inflation response," said Gregory Daco, at Ernst & Young.

But added that "the balance of risks is rapidly shifting".

"Elevated global economic and financial market uncertainty will make it essential for the Fed to calibrate its policy response."

They expect to lift rates to around 4.6 percent in 2023, according to the median estimate -- from the current 3-3.25 percent.

Expectations for even more tightening kept the dollar elevated across the board, and it hit a fresh 24-year high near 147 yen, more than one yen above the point at which Japanese authorities last month intervened to protect the currency.

Still, sterling held most of the gains it enjoyed Wednesday fuelled by expectations the Bank of England will unveil a huge rate hike next month in the wake of volatility in UK financial markets.

The crisis in London saw the yield on 30-year government bonds bounce above five percent, while that on 10-year bonds hit 4.64 percent, the highest since 2008 during the global financial crisis.

The UK government's increased borrowing costs are a reflection of market unease regarding the affordability of upcoming tax cuts aimed at supporting Britain's recession-threatened economy.

Oil prices were broadly flat after another drop Wednesday following a report from the industry-funded American Petroleum Institute indicating a huge jump in US stockpiles, suggesting weakening demand.

Meanwhile, OPEC trimmed its estimate for growth in demand this year and next by half a million barrels a day.

A drop in the past few days has eaten into last week's gains that came in response to a decision by OPEC and other producers to slash output by two million barrels a day.