Asia’s major markets slipped backwards on Tuesday with cautious traders growing increasingly concerned about the Federal Reserve’s plans to wind back its financial support and begin hiking interest rates.
While the fast-spreading Omicron coronavirus variant is also worrying investors, traders are preparing for the imminent end to the pandemic era of ultra-cheap cash, which helped the economic recovery and fanned a global rally for nearly two years.
A pick-up in consumer activity, surging wages, supply chain snarls and rising energy costs are combining to push inflation in several countries to highs not seen for a generation, ramping up pressure on central bankers to act before it gets out of control.
Several countries have already started hiking borrowing costs but all eyes are on the US Federal Reserve as it tees up its first move, with commentators predicting that to come in March, after it has finished winding down its bond-buying programme. That could be followed by two or three more by the end of the year, they say.
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In remarks released ahead of his Senate confirmation hearing on Tuesday, boss Jerome Powell said the bank was ready to act.
“We will use our tools to support the economy and a strong labour market and to prevent higher inflation from becoming entrenched,” his opening statement said.
“We can begin to see that the post-pandemic economy is likely to be different in some respects. The pursuit of our goals will need to take these differences into account.”
Data on Friday showed fewer jobs than expected were created in December but there were plenty of openings and wages soared, suggesting further upward pressure on prices is likely.
Traders are now cautiously awaiting the release of US inflation figures on Wednesday, which could play a major role in the Fed’s thinking.
OANDA’s Jeffrey Halley said: “Given how cautious the [policy board] has been over the past two years, to the point of appearing snail-like, I am struggling to see them hitting the panic button right now.”
Tokyo And Shanghai Drop
The prospect of higher rates has rattled US markets at the start of the year. The Nasdaq is already down more than 4% as tech firms are more susceptible owing to their reliance on debt to drive growth.
While the tech-heavy index inched up slightly Monday, the S&P 500 and Dow closed in the red, though late dip-buying helped them recover from early steep losses.
Asia also suffered, with Tokyo returning from a long weekend break to end lower, while Shanghai, Sydney, Manila, Wellington and Jakarta also slipped.
Singapore, Taipei, Mumbai and Bangkok rose while Hong Kong and Seoul were flat. London, Paris and Frankfurt rose in early business.
The benchmark Nikkei 225 index dropped 0.90%, or 256.08 points, to end at 28,222.48, while the broader Topix index fell 0.44%, or 8.86 points, to 1,986.82.
The Hang Seng Index inched down 7.48 points to 23,739.06. The Shanghai Composite Index fell 0.73%, or 26.08 points, to 3,567.44, and the Shenzhen Composite Index on China’s second exchange lost 1.06%, or 26.09 points, to 2,441.23.
Key figures around 0820 GMT
Tokyo > Nikkei 225: DOWN 0.9% at 28,222.48 (close)
Hong Kong > Hang Seng Index: FLAT at 23,739.06 (close)
Shanghai > Composite: DOWN 0.7% at 3,567.44 (close)
London > FTSE 100: UP 0.6% at 7,487.64
New York > DOW: DOWN 0.5% at 36,068.87 (close)
- AFP with additional editing by Sean O’Meara
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