Asian shares tracked Wall Street higher on Friday, although gains could quickly unwind as investors grapple with the reality that surging U.S. inflation will likely lead to higher interest rates for longer, hastening a global recession.
"Equity investors seemingly decided that a stronger U.S. inflation still doesn't negate expectations of sharp declines in prices ahead," said Rodrigo Catril, senior FX strategist at NAB.
Short-term movements aside, the surprisingly strong U.S. inflation data have led the markets to fully price in a 75 basis point hike from the Fed at its November meeting and even another jumbo rate hike of 75 bp in December, with a 71.5% probability. On Friday, the gap between the 2-year and 10-year Treasury yields was mostly inverted, with the spread standing at a minus 51 bp.The aggressive tightening from the Fed is putting pressure on central banks around the globe to follow. Singapore's central bank on Friday tightened monetary policy for the fourth time this year and warned more would be needed to tame inflation.
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