Asia’s major markets slumped on Tuesday with anxious traders reacting to another volatile day on Wall Street and preoccupied by the Federal Reserve’s plans to hike interest rates.
A disappointing start to the corporate earnings season, as well as growing concern about Russia’s military build-up on Ukraine’s border and warnings of a possible invasion were also dragging on sentiment.
After spending much of last year playing down the spike in prices, the US central bank has in recent months taken a sharp hawkish turn on monetary policy as officials look to bring inflation, which is at a four-decade high, under control.
Minutes from the most recent meeting indicate it will begin lifting interest rates from March with three or possibly four more hikes before the end of the year. On top of that, it plans to start offloading its vast bond holdings.
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But while the move to battle runaway prices is seen as crucial, the end of the era of ultra-cheap cash for investors has rattled markets after almost two years of uninterrupted gains to record or multi-month highs.
All attention is on the Fed gathering that starts later in the day, with investors poring over every word from the bank’s statement and boss Jerome Powell’s subsequent news conference.
“The Fed is scrambling to control inflation and markets have gone from expecting a gradual interest rate hiking cycle to an accelerated tightening action until inflation eases,” OANDA’s Edward Moya said.
“Some economists think the Fed needs a half-point rate increase in March to show they are serious about tackling inflation and signal that more are coming.”
Wall Street’s three main indexes have had a particularly rough time, with the Nasdaq down more than 10% from recent peaks, putting it in correction territory.
Dip-Buying Surge
And on Monday they saw some wild gyrations, suffering intra-day losses before dip-buying saw them all surge in the last hour to end in positive territory.
London, Paris and Frankfurt tanked on Monday, without enjoying any recovery, with eyes on eastern Europe as the United States said 8,500 troops were put on standby for possible deployment as fears grow that Russian President Vladimir Putin is planning to invade Ukraine.
Asia spent all of Tuesday well in the red with Tokyo down 1.7% as Hong Kong shed 1.7% too, while Singapore, Taipei and Jakarta were also off more than 1%.
The benchmark Nikkei 225 index dropped 1.66%, or 457.03 points, to end at 27,131.34, while the broader Topix index tumbled 1.72%, or 33.25 points, to 1,896.62.
The Hang Seng Index sank 1.67%, or 412.85 points, to 24,243.61. The Shanghai Composite Index dived 2.58%, or 91.04 points, to 3,433.06, while the Shenzhen Composite Index on China’s second exchange shed 3.31%, or 79.18 points, to 2,313.06.
Australia Inflation Shock
Sydney shed 2.5% after higher-than-forecast Australian core inflation figures ramped up bets on a rate hike by the country’s central bank. Shanghai and Seoul fell more than 2%, with Wellington, Mumbai and Bangkok also down.
While there is a general consensus that the long-term outlook for markets remains positive – thanks to reopenings, vaccination programmes and the less-severe Omicron variant – many also warn of more near-term upheaval.
Jeremy Siegel, at the Wharton School of the University of Pennsylvania and author of Stocks for the Long Run, said: “I’m still very positive on long-term equities but I think it’s in for a rocky time the next two or three months.
“We have to get used to the fact that the Fed is going to be much more hawkish.”
Key figures around 0820 GMT
Tokyo > Nikkei 225: DOWN 1.7% at 27,131.34 (close)
Hong Kong > Hang Seng Index: DOWN 1.7% at 24,243.61 (close)
Shanghai > Composite: DOWN 2.6% at 3,433.06 (close)
London > FTSE 100: UP 0.7% at 7,345.70
New York > Dow: UP 0.3% at 34,364.50 (close)
- AFP with additional editing by Sean O’Meara
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