China Concerns Weigh On Asia Markets Ahead of Fed

Asian markets were mixed on Wednesday with investors awaiting a much anticipated Federal Reserve meeting. Hong Kong and Shanghai stock exchanges were both down marginally, amid concern about China’s economy and a new wave of Covid infections.

Wall Street enjoyed a third straight day of record levels for its three main indexes, while Paris hit a 21-year high. Both were buoyed by strong earnings, but anchored by fears about surging inflation and the threat of higher interest rates.

With prices rising at rates not seen for years, central banks are being forced to pull back the vast financial support put in place at the start of the pandemic, which has been credited with sending equities to records and helping the economic recovery.

While some have already lifted borrowing costs or started to tighten the purse strings, the main focus is on the US Federal Reserve, which is expected to say later on Wednesday when it will begin tapering its massive bond-buying programme, and when interest rates might be lifted.

“There does appear to be a growing recognition amongst a rising number of Fed officials that inflation is likely to be much more persistent than was previously envisaged,” CMC Markets analyst Michael Hewson said.

“It is clear that the Fed’s narrative for acting has shifted away from the labour market, and there is a wider acknowledgement about rising inflation risk.

“However, once the taper timetable has been outlined Fed officials will then come under increasing pressure to outline a timetable for an increase in interest rates, a move that Fed Chair Jay Powell has already indicated is not imminent and could be as long as a year away.”

The Bank of England is seen as likely to announce a rate rise at its meeting on Thursday.

Sydney, Wellington, Taipei, Manila and Jakarta all rose but Singapore, Bangkok, Mumbai and Seoul retreated.

Paris opened slightly lower a day after its record, while London also dipped and Frankfurt was flat. Tokyo was closed for a holiday.

‘Downward pressure’

Hong Kong and Shanghai both fell slightly, with the latest Covid spike in several parts of China forcing some cities into fresh lockdowns that have led to worries about the impact on already strained supply chains in the world’s number two economy.

Stresses in the country were highlighted on Monday when the government urged people to stock up on daily necessities and said authorities should take steps to ensure adequate food supplies as containment measures were introduced.

A summer outbreak has been blamed for dragging on growth in the third quarter and the closing of factories again will further flame fears about the recovery outlook.

Premier Li Keqiang warned on Tuesday that the economy faced more headwinds and said taxes would have to be cut to support small and medium-sized companies.

The slowdown comes as prices at the factory gate and energy costs in China soar, meaning leaders have to find a way to nurture growth and keep a lid on inflation.

“While Premier Li did not say what was driving the ‘downward pressure,’ the regulatory crackdown and the woes in the property sector are prime candidates, as is China’s zero-Covid policy, which is seeing restrictions put back in place in many provinces,” National Australia Bank’s Tapas Strickland said.

Still, there was some positive news on troubled China Evergrande after it said it had delivered more than 57,400 units to buyers between July and October, providing a little more respite from a debt crisis that has left it teetering and investors worried about the property sector.

Oil markets fell more than 1% as concerns about China tempered demand expectations, while eyes are on the monthly meeting of OPEC and other key producers as they face calls to hike output in the face of soaring prices.

“OPEC is coming under more political pressure from importing countries to boost supply because oil prices are at the highest level in seven years,” Pavel Molchanov, at Raymond James & Associates, said.