Asian shares fall on global rate scare

Asian shares tracked Wall Street lower on Thursday as sticky US inflation forced markets to slash bets on how much Federal Reserve easing might come this year, a result that sent the dollar flying to a 34-year high against the beleaguered yen.

US stock futures lost another 0.2per cent after Wall Street slid around 1% overnight, while regional bonds took a kicking following a 20-basis-point jump in Treasury yields overnight to their highest since November, reports
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.7 per cent. Japan's Nikkei dropped 0.8 per cent.

China's blue chips eased 0.4 per cent, and Hong Kong's Hang Seng index fell 1.1 per cent, after data showed consumer prices in the world's second-largest economy rose by a muted 0.1 per cent in March, missing expectations.

Data overnight showed US inflation in March once again came in hotter than expected, decimating the chance of a rate cut in June. Core CPI advanced 0.4 per cent, above forecasts of a 0.3 per cent rise.

"This marks the third consecutive strong reading and means that the stalled disinflationary narrative can no longer be called a blip," said Seema Shah, chief global strategist at Principal Asset Management.

"In fact, even if inflation were to cool next month to a more comfortable reading, there is likely sufficient caution within the Fed now to mean that a July cut may also be a stretch, by which point the US election will begin to intrude with Fed decision making."

Fed minutes out overnight also showed that officials had begun worrying that inflation progress might have stalled before the March inflation data, with some raising the possibility that the current policy rate was not restrictive enough.

Investors, who had been hanging onto the expectation of a June cut, now see September as the most likely timing for the easing cycle to start.

The total easing expected this year fell to just 42 basis points, lower than the Fed's own projection of 75 basis points. The chance of Fed not cutting at all this year rose to 13%, from 2.1% a day earlier, according to CME FedWatch.

Investors now await the U.S. producer price data and the European Central Bank policy meeting later in the day. The ECB is all but certain to keep borrowing costs at a record high but the focus is on whether officials would back a rate cut in June.

Bank of Canada kept its interest rate unchanged overnight, and the bank governor said a cut in June was possible if a recent cooling trend in inflation is sustained.