HONG KONG, Feb 15 — Asian stocks slipped while the US dollar held firm today following US inflation data and remarks from central bank officials that have investors worrying interest rates are going to be higher for longer.

European equity markets looked set to follow Asia lower. The pan-region Euro Stoxx 50 futures slipped 0.21 per cent, German DAX futures were down 0.23 per cent, and FTSE futures edged down 0.11 per cent.

Headline US consumer inflation came in at 6.4 per cent year-on-year for January, a bit higher than the 6.2 per cent economists had expected, setting off selling in the bond market and Fed funds futures as hopes that rates could be cut later this year grow dimmer.

Fed funds futures now imply a peak above 5.2 per cent by mid-year and rates above 5 per cent at year’s end.

Two-year Treasury yields, which rise when prices fall, climbed nearly nine basis points in New York trade to 4.611 per cent, widening their premium over 10-year rates — an unusual phenomenon that reliably signals recession.

By early afternoon, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1.4 per cent, led by drops of more than 1 per cent in Australia and Hong Kong. Japan’s Nikkei share average sank, reversing a small early gain.

S&P 500 futures dropped 0.4 per cent in Asia. Wall Street stocks ended mixed yesterday after the inflation reading.

Analysts were bracing for further falls.

“If I combine this earlier (US) Fed rhetoric trying to keep the rates higher for longer and the recent CPI number...then it seems likely that there should be some degree of moderation in the equity markets, both developed markets and Asian markets,” said Manishi Raychaudhuri, head of Asia Pacific equity research at BNP Paribas.

He said the dollar might also regain some strength over emerging market currencies, helped by the prospect of US rates staying elevated.

The dollar touched a six-week high of 133.30 Japanese yen overnight and hovered at 133.05 yen today. It had a bumpier ride against other currencies following the CPI data, but seems to be pausing following a January slide.

The dollar index against other major currencies was steady at 103.4.

The Australian dollar eased a bit to US$0.6938 even as central bank Governor Philip Lowe said rates would need to rise further to contain inflation in remarks to a parliamentary committee.

China’s central bank ramped up medium-term liquidity injections as it rolled over maturing policy loans today, while keeping the interest rate unchanged, matching market expectations. But the mainland’s stock markets slid broadly by early afternoon as investors wait for more signs of whether an expected economic recovery is gaining traction.

Oil prices fell as traders worried about mounting supplies and weakening demand. US crude dipped 0.86 per cent to US$78.38 a barrel. Brent crude to US$84.87.

Gold gave up some early gains by afternoon. Spot gold traded at US$1847.5085 per ounce. Bitcoin clung to an overnight bounce at US$22,114. — Reuters