Attention is turning squarely to today’s PCE inflation release. The Federal Reserve’s preferred measure of underlying price pressure is carrying extraordinary significance this week, coming hot on the heels of Wednesday’s FOMC minutes. Those minutes are revealing growing concern among policymakers over sticky inflation and are raising the prospect that the next policy adjustment could be a rate hike, rather than the two cuts that markets had been pricing in.

The consensus is calling for Core PCE to come in at 0.3% month-on-month and 2.9% year-on-year. A print above these levels is likely to trigger a sharp repricing of rate expectations, lending further support to the US Dollar and increasing downside pressure on equities, high-yield spreads, and emerging market assets.

Asian trading is unfolding in thin conditions as Lunar New Year holidays are keeping regional participation subdued. China, Hong Kong, Taiwan, and South Korea are all observing holiday closures, materially reducing the depth and responsiveness of Asian markets.

Japan’s CPI is surprising to the upside this morning, reinforcing expectations that the Bank of Japan is continuing along its gradual policy normalisation path. The data is lending support to the Japanese Yen, which is benefiting from both the positive inflation surprise and the broader safe-haven bid flowing from geopolitical uncertainty.

Nikkei 225 futures are edging lower in line with US market cues and the weight of inflation concerns. The combination of a stronger Yen — which is historically a headwind for export-heavy Japanese equities — and the cautious global mood is keeping Japanese equity futures under pressure.