Stocks struggle as oil surge sets stage for hawkish Fed By Reuters

By Tom Westbrook

SINGAPORE (Reuters) – Asian stocks struggled for headway on Wednesday while 10-year U.S. Treasury yields stood at 16-year highs as surging oil prices drive inflation and set the scene for the Federal Reserve to project interest rates staying higher for longer.

futures eased from 10-month highs overnight but at $94.26 a barrel are up 30% in three months thanks to Saudi Arabia and Russia vowing to extend output cuts.

Higher energy costs led to a bigger-than-expected spike in Canadian inflation, overnight data showed, lifting the and triggering selling in the Treasury market. [US/]

Benchmark 10-year Treasury yields hit their highest since 2007 at 4.371% overnight and were last at 4.36%.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%, as did . Overnight on Wall Street the also slipped 0.2%.

Futures pricing implies almost no chance of a Fed hike at 1800 GMT, but traders, who have begun winding back bets on cuts in 2024 and will be closely focused on the U.S. central bank’s economic projections and chair Jerome Powell’s news conference.

“The previous dot plot saw many participants expecting a cut in 2024. There is no reason for those dots to significantly move,” said Sam Rines, managing director at research firm CORBŪ in Texas.

“The ‘risk management’ aspect of the Powell presser is likely to be: positive in regard to downward adjustments to the policy rate as or if inflation wanes, (but) negative with respect to threats of future tightening.”

The Fed meeting leads a week jammed with central bank meetings and data over the next few days. British inflation figures are due on Wednesday, followed by central bank meetings in Sweden, Switzerland, Norway, Britain and Japan on Thursday.

STERLING STEADY AHEAD OF CPI

Foreign exchange markets have largely been in a holding pattern ahead of the Fed meeting, though the yen has continued to face pressure which early on Wednesday prompted a riposte from Japan’s top financial diplomat. [FRX/]

Masato Kanda told reporters that Japanese authorities were always in close communication with U.S. counterparts and that he wouldn’t rule out any options if “excessive moves persist.”

The yen is down 11% on the dollar this year as expectations firm for U.S. rates to stay high and Japanese rates to stay low. The yen…