Asian Markets Mostly Up As Traders Weigh Fed Tightening, Inflation

Most Asian and European markets rose on Monday as traders brushed off another negative performance on Wall Street as US data showed fewer new jobs than expected were created last month but that wages saw a strong gain, keeping pressure on the Federal Reserve in its battle against inflation.

Traders will be keeping a watch on inflation readings out of the United States and China this week as they try to assess the outlook for the global economy with rocketing energy costs and supply snarls compounding problems caused by the fast-spreading Omicron Covid variant.

The closely watched non-farm payrolls figure on Friday came in well short of forecasts, marking a disappointing end to the year, while wage growth beat estimates.

Fed officials are now faced with the problem of having to adjust monetary policy to rein in prices while at the same time avoid damaging the economic recovery and causing a panic on markets as the cheap cash that has fuelled a near-two year rally is removed.

The bank has already started tapering its vast bond-buying programme put in place at the start of the pandemic and has signalled it could start lifting interest rates from record lows from March, with some observers predicting three hikes this year.

There were also indications officials were considering reducing its massive bond holdings, putting further upward pressure on lending costs.

The yield on 10-year Treasuries, a key indicator of future interest rates, climbed last week at its fastest pace in almost a year.

“The US Fed needs to tread carefully in removing policy accommodation – it should not happen too fast otherwise it risks a disruption to the rebound in economic growth and could lead to another ‘taper tantrum’,” Diana Mousina, of AMP Capital, said.

She added that she saw inflation causing further upheaval in markets this year, while US elections in November and geopolitical issues would also play a role.

IMF Warning

Meanwhile, the International Monetary Fund warned on Monday that emerging economies should prepare for possible rough times as the Fed prepares to hike rates and Covid hits global growth.

The main focus this week is the release Wednesday of US inflation, which is at a four-decade high.

All three of Wall Street’s main indexes ended down, with the Nasdaq again the worst-hit as tech firms are more susceptible to higher rates owing to the reliance on debt to drive growth.

Asia had an uncertain start but most markets were up.

Hong Kong extended a recent winning streak into a third day, and Shanghai was also up.

Mainland markets will be attracting attention after China’s securities regulator last week pledged measures to avoid volatility and “firmly” prevent big fluctuations.

Stocks in the country had a tough start to the year as outbreaks of Omicron force local governments – as part of a “zero-Covid” strategy – to impose strict containment and lockdown measures.

Singapore continued its bright start to the year with another healthy gain while there were also advances in Taipei, Manila, Mumbai, Bangkok and Jakarta, though Sydney, Seoul and Wellington dipped. Tokyo was closed for a holiday.

London, Frankfurt and Paris all opened on the front foot.

Oil prices ticked up after Friday’s retreat, with optimism about the demand outlook still outlasting weakness in China caused by the Covid response.