Increasing fears about the US Federal Reserve’s plans to fight surging inflation by ramping up interest rates hit Asian markets again on Wednesday with Tokyo leading the retreat, shedding close to 3% with market heavyweights Sony and Toyota seeing the steepest falls.
Sony collapsed almost 13% – its biggest drop since 2008 – on news that rival Microsoft would pay $69 billion for US gaming giant Activision Blizzard, betting big on the sector. Toyota dived 5% after warning that it expected to miss its production target for this fiscal year.
The drops followed a hefty sell-off on Wall Street, while oil prices extended their rally after a blast at a key pipeline.
A rise in global prices since early 2021 has forced central banks around the world to start winding back the colossal financial support put in place at the start of the pandemic, with many warning that failure to act could see them run out of control.
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Finance chiefs in several countries – including at the Bank of England – have already put the wheels in motion, but the main focus is on the Fed, the central bank of the world’s biggest economy, which has so far refrained from lifting rates, until now.
Officials are currently reining in their massive bond-buying programme and aim to hike borrowing costs in March.
But while Fed boss Jerome Powell has said the policy board will be careful in its approach and mindful not to jeopardise the economic recovery, there is a worry it will have to be more aggressive than initially thought to bring inflation down from four-decade highs.
Some commentators are predicting a 50 basis-point rise in March – which would be the first that big since 2000 – having initially estimated 25 points.
Expectations for a quick run-up in costs has sent Treasury yields rocketing and caused near-panic on equity markets, with all three main indexes on Wall Street deep in the red so far this year, having hit multiple records in 2021.
US Treasury yields were pushing closer towards 2% and on Wednesday, German Bund yields passed into positive territory for the first time since May 2019.
Tokyo Heaviest Hit
The stock market losses in New York continued in most of Asia on Wednesday with Tokyo taking the heaviest hit. Sydney, Seoul, Singapore, Wellington, Taipei, Manila and Jakarta were also in retreat.
The Nikkei 225 was down 3.33% shortly before the closing bell, and finished 2.80% lower at 27,467.23. The broader Topix index gave up 2.97%, or 58.66 points, to close at 1,919.72.
However, Hong Kong edged up by the end following remarks from the Chinese central bank hinting it would unveil fresh economy-supporting measures, having cut interest rates on Monday for the first time since the start of the pandemic. Shanghai closed in negative territory.
The Hang Seng Index edged up 0.06%, or 15.07 points, to 24,127.85. But the Shanghai Composite Index fell 0.33%, or 11.73 points, to 3,558.18, while the Shenzhen Composite Index on China’s second exchange lost 0.92%, or 22.71 points, to 2,442.12.
London opened lower as data showed UK inflation hit a 30-year high in December. Paris and Frankfurt also fell.
While markets are suffering heavy volatility, there remains a broad belief that the global recovery is still on track as economies reopen and fears over the less-severe Omicron coronavirus variant recede.
And a major sign of that is oil, which rallied again Wednesday a day after both contracts hit more than seven-year highs on the back of demand optimism.
Key figures around 0820 GMT
Tokyo > Nikkei 225: DOWN 2.8% at 27,467.23 (close)
Hong Kong > Hang Seng Index: UP 0.1% at 24,127.85 (close)
Shanghai > Composite: DOWN 0.3% at 3,558.18 (close)
London > FTSE 100: DOWN 0.4% at 7,533.14
New York > Dow: DOWN 1.5% at 35,368.47 (close)
- AFP with additional editing by Sean O’Meara
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