Asian markets got off to a shaky start on Monday as U.S. stock futures took an early skid on rate worries, while a tightening lockdown in Shanghai stoked concerns about global economic growth and possible recession.
"A series of rate hikes and hawkish communication came against a backdrop of plummeting Chinese and European activity, new plans for Russian energy bans and continued supply-side pressures," warned analysts at Barclays.
"This creates the gloomy prospect of persistent inflation forcing central banks to hike rates despite sharply slowing growth."
There was no let up in China's zero COVID policy with Shanghai tightening the city-wide COVID lockdown of 25 million residents.
S&P 500 stock futures led the way with a drop of 0.6%, while Nasdaq futures shed 0.7%. U.S. 10-year bond futures also lost 8 ticks.
Nikkei futures were trading at 26,745 compared to a cash close of 27,003 on Friday.
Investors were also tense ahead of the U.S. consumer price report due on Wednesday where only a slight easing in inflation is forecast, and certainly nothing to prevent the Federal Reserve from hiking by at least 50 basis points in June.
Indeed, core inflation is actually seen rising by 0.4% in April, up from 0.3% the previous month, even as the annual pace dips a bit due to base effects.
"In Q1, the annualised monthly change in core CPI was 5.6%," noted analysts at ANZ. "That is too high for the Fed and we think the FOMC won't be relaxed about inflation until the core number moderates to around 0.2% m/m on a sustained basis.
"The Fed is not the only central bank facing inflation pressures. Increasingly, the guidance from the ECB is becoming a lot more hawkish."
Fed fund futures are priced for rates reaching 1.75-2.0% in July, from the current 0.75-1.0%, and climbing all the way to around 3% by the end of the year.
The diary is full of Fed speakers this week, which will give them plenty of opportunity to keep up the hawkish chorus.
The aggressive rate outlook saw the U.S. dollar scale 20-year highs on a basket of majors last week at 104.070, and it was last trading firm at 103.760.
The euro was stuck at $1.0534 and just a whisker above its recent lows of $1.0481, while the dollar was very much on control against the Japanese yen at 130.72.
Oil prices eased back a little in early trade as Group of Seven (G7) nations committed on Sunday to ban or phase out imports of Russian oil.
Russia celebrates Victory Day on Monday amid speculation President Vladimir Putin might declare war on Ukraine in order to call up reserves.
Brent was last quoted 75 cents lower at $111.64, while U.S. crude lost 78 cents to $108.99. [O/R]Gold was idling at $1,876 an ounce, having struggled to make any traction as a safe haven recently.