NEW YORK: Stocks and bonds face more pain when markets open in Asia today following a shock US inflation print that heaped pressure on the Federal Reserve (Fed) to intensify monetary tightening.

       Equity futures indicate declines in Japan and Hong Kong after the worst drop in global stocks last week since October 2020.

       Asian sovereign bonds are set to slide in the slipstream of a Treasuries slump that propelled the US two-year yield to the highest in 14 years.

       The move in short rates left 30-year Treasury yields below those on five-year notes, pointing to the risk of aggressive Fed interest-rate hikes leading to a hard economic landing.

       A dollar gauge hit the highest in a month as investors sought havens amid a toxic mix of rising costs and slowing growth.

       “At some point financial conditions will tighten enough and/or growth will weaken enough such that the Fed can pause from hiking,” Goldman Sachs Group Inc strategists including Zach Pandl wrote in a note.

       “But we still seem far from that point, which suggests upside risks to bond yields, ongoing pressure on risky assets, and likely broad US dollar strength for now.”

       The US consumer price index rose 8.6% in May from a year earlier in a broad-based advance to a fresh 40-year high, adding to a slate of troubling inflation data across a range of nations.

       Many investors expect three half-point Fed rate hikes this week and again in July and September. Barclays Plc and Jefferies LLC said an even bigger 75-basis-point move is possible at the June meeting.

       The volatility in Treasuries “can’t be anything that any central bank would welcome,” Sonal Desai, Franklin Templeton’s fixed-income chief investment officer, said on Bloomberg Television.

       “We’re going to see more of the same. It’s not going to be a nice, smooth grind upwards. The Fed is going to need to do more.”

       Markets will also have to contend with Covid outbreaks in China, where Beijing and Shanghai resumed mass virus testing.

       The fear is China’s Covid-zero strategy will lead to repeated lockdowns that damage both its economy and global supply chains. The latter are also being affected by the war in Ukraine.

       Asian currencies may also come under pressure following the spike in the dollar. The yen remains in sight of a 24-year-low against the greenback on the stark policy contrast between a hawkish Fed and a still dovish Bank of Japan. — Bloomberg