After last week's Federal Reserve interest rate hike and a forecast-beating jobs report, focus is lasered on the consumer price index reading later in the day, which will play a key decision-making role in the US central bank's June policy meeting.
The Fed hinted at a possible pause in its long-running tightening cycle but observers warned that any sign inflation is creeping up would put pressure on officials to turn the screws further.
And while the world's top economy continues to show resilience, several indicators suggest it is easing, feeding concerns that it could be heading for a recession.
"Even though investors continue to anticipate the best of both worlds with the medium-term trends around inflation and interest rates falling together, growth is also slowing," said SPI Asset management's Stephen Innes.
"Central banks are still tightening policy, which limits the upside to risky assets."
Adding to the headache for the Fed is the need to avoid causing more ructions in the finance sector after the recent upheaval that has seen three US regional lenders go under, one taken over by JPMorgan, and UBS buying Credit Suisse in the space of two months.
The lenders' troubles have been partly blamed on the rapid rate hikes since last year, meaning monetary policymakers have been forced to rethink their approach to bringing down inflation.
Dealers are also keeping tabs on developments in the talks to raise the US debt ceiling, with congressional leaders unable to reach an agreement on how to lift borrowing before a deadline to avoid a catastrophic default.
Crunch talks between President Joe Biden and key lawmakers from both parties Tuesday yielded no breakthrough, though they did decide to meet again Friday to hammer out a deal.
Biden said he made one thing clear during the talks: "Default is not an option."
However, the way forward will be tough because the Republicans, who control the House of Representatives, said they will only raise the limit from its current $31.4 trillion maximum if spending curbs are enacted.
The heads of some of Wall Street's biggest names urged lawmakers to get a deal done quickly.
"The short-term impacts of a protracted negotiation are costly; the long-term implications of a default are unthinkable," warned current and former leaders of the Treasury Borrowing Advisory Committee, which includes top executives of Goldman Sachs and JPMorgan among others.
"The magnitude of adverse consequences from a prolonged negotiation, or a default, is unquantifiable."
Still, Jason Wong, at the Bank of New Zealand, said traders were biding their time for now.
"I don't think there is likely to be any market reaction until we get closer to the X-date," he said. "That is still a moving target, likely into June and quite possibly later into July."
"Meanwhile, headlines around negotiations are more noise than signal and mostly market-neutral."
Wall Street started the week on a soft note, and Asia largely followed suit.
Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Mumbai and Taipei all dropped on Wednesday, though Bangkok, Wellington, Manila and Jakarta squeezed out gains. Singapore was flat.
London was flat in the morning, while Paris and Frankfurt edged down.
- Key figures around 0720 GMT -
Tokyo - Nikkei 225: DOWN 0.4 percent at 29,122.18 (close)
Hong Kong - Hang Seng Index: DOWN 0.5 percent at 19,762.20 (close)
Shanghai - Composite: DOWN 1.2 percent at 3,319.15 (close)
London - FTSE 100: FLAT at 7,762.72
Euro/dollar: UP at $1.0968 from $1.0965 on Tuesday
Pound/dollar: DOWN at $1.2621 from $1.2622
Dollar/yen: UP at 135.25 yen from 135.22 yen
Euro/pound: UP at 86.88 pence from 86.84 pence
West Texas Intermediate: DOWN 0.9 percent at $73.03 per barrel
Brent North Sea crude: DOWN 0.9 percent at $76.71 per barrel
New York - Dow: DOWN 0.2 percent at 33,561.81 (close)
-- Bloomberg News contributed to this story --
dan/pbt
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