Asian markets retreat as US inflation fuels rate-hike bets

The much-anticipated figures from January's consumer price index showed a slight slowdown from the previous month, but the 6.4 percent reading was higher than forecast, suggesting a return to normality will take longer than hoped.

A number of top Fed officials also lined up to restate that borrowing costs will likely need to go higher and for an extended period if they are to bring inflation down to their two percent target.

Recent data had suggested the bank's almost year-long rate-hike campaign was beginning to show results, providing fuel for a healthy run-up in global markets in January as traders began factoring in a possible cut towards the end of 2023.

But that optimism has taken a severe hit, with a blockbuster jobs report confirming that the world's top economy remains robust, narrowing the scope for the Fed to ease up.

"While in line, the CPI release is a reminder that lowering inflation towards the Fed's target may be more gradual than conventional thinking," said SPI Asset Management's Stephen Innes.

"And this environment may also result in a higher-for-longer rate environment -- somewhat counter to a market still pricing in a Fed funds rate cut later this year."

After the figures were released, monetary policymakers reiterated their determination to stay the course, with expectations that rates could go well above five percent, from the current 4.5-4.75 percent.

Dallas Fed president Lorie Logan said: "We must remain prepared to continue rate increases for a longer period than previously anticipated, if such a path is necessary to respond to changes in the economic outlook or to offset any undesired easing in conditions."

However, Philadelphia Fed chief Patrick Harker said he thought the bank was "likely close" to being restrictive enough.

Focus now turns to the release of US retail sales figures later Wednesday.

Wall Street ended mixed, having fluctuated after the data release but Asia sank back into the red.

Hong Kong led losses, shedding more than one percent, with China's reopening from zero-Covid no longer able to provide any cushion to sentiment.

Shanghai, Tokyo, Singapore, Seoul, Sydney, Mumbai, Taipei, Bangkok and Jakarta were also well down.

And London opened slightly lower even as data showed UK inflation slowed to 10.1 percent, which was lower than expected.

"UK inflation may still be far too high but the January CPI report has offered some cause for optimism, slipping faster than expected on both a headline and core basis," said OANDA's Craig Erlam.

The prospect of more rate hikes pushed the dollar even higher against its peers, having rallied Tuesday, with the pound weighed by the CPI data out of London.

Oil prices sank more than one percent as traders fretted over the impact on demand.

- Key figures around 0820 GMT -

Tokyo - Nikkei 225: DOWN 0.4 percent at 27,501.86 (close)

Hong Kong - Hang Seng Index: DOWN 1.4 percent at 20,812.17 (close)

Shanghai - Composite: DOWN 0.4 percent at 3,280.49 (close)

London - FTSE 100: DOWN 0.1 percent at 7,942.43

Euro/dollar: DOWN at $1.0710 from $1.0739 on Tuesday

Dollar/yen: UP at 133.38 yen from 133.07 yen

Pound/dollar: DOWN at $1.2080 from $1.2176

Euro/pound: UP at 88.65 pence from 88.17 pence

West Texas Intermediate: DOWN 1.5 percent at $77.90 per barrel

Brent North Sea crude: DOWN 1.3 percent at $84.49 per barrel

New York - Dow: DOWN 0.5 percent at 34,089.27 (close)