Asia’s stock markets were in retreat on Friday as pressure built on the US Federal Reserve to hike rates to fight inflation sooner rather than later.
A pledge by Fed chief Jerome Powell this week to rein in surging prices while also protecting the recovery in the world’s top economy provided a much-needed lift to investor sentiment and helped propel a rally across equities.
Data showing US inflation appeared to be stabilising added to the positivity and tempered fears about the end of the ultra-loose monetary policies, which have been key to a near two-year markets rally and global economic rebound.
But the mood soured again on Thursday after the Fed officials’ comments. Lael Brainard, in her Senate hearing to become Powell’s deputy, said rates could rise as early as March, a move supported by Fed Bank of Philadelphia chief Patrick Harker who also raised the possibility of another three before the end of the year.
Minutes from the bank’s December policy meeting showed officials were keen to act quickly to tame prices, and speed up the taper of its massive bond-buying programme, then begin offloading its Treasury holdings – measures that have been used to keep rates at all-time lows.
“With four [policy board] voters now expecting to hike in March,” OANDA’s Edward Moya said. “Financial markets can’t rule out it is possible that they could deliver five rate hikes this year.”
The Nasdaq led steep losses across Wall Street, dropping more than 2%, as tech firms are more susceptible to higher borrowing costs.
The selling continued in Asia, with Tokyo, Sydney and Seoul down more than 1% each. Hong Kong slipped after enjoying a strong rally this week, with tech firms under pressure. Shanghai, Wellington, Taipei and Manila were also in the red. Singapore and Jakarta bucked the trend to rise.
The benchmark Nikkei 225 index closed down 1.28%, or 364.85 points, at 28,124.28 while the broader Topix index ended down 1.39%, or 27.92 points, at 1,977.66.
The Hang Seng Index eased 0.19%, or 46.45 points, to 24,383.32. The Shanghai Composite Index shed 0.96%, or 34.00 points, to 3,521.26, while the Shenzhen Composite Index on China’s second exchange was marginally higher, inching up 0.48 points to 2,435.40.
UK’s Strong Growth
London opened with losses despite data showing the UK economy enjoyed strong growth in November and had surpassed its pre-pandemic level. Paris and Frankfurt also slipped.
The impact of rocketing prices on businesses was made clear in a survey by The Conference Board, the US business and research group, on Thursday, with chief executives saying they were the second-biggest worry, behind labour shortages.
But markets strategist Louis Navellier remained upbeat, saying: “An anticipated [economic] reopening will present recovery opportunities that are fairly predictable.
“Expect some near-term volatility as we navigate to the end of the pandemic and begin to experience the tapering by the Fed and use the pullbacks as a buying opportunity to position for a strong recovery come springtime.”
Key figures around 0820 GMT
Tokyo > Nikkei 225: DOWN 1.3% at 28,124.28 (close)
Hong Kong > Hang Seng Index: DOWN 0.2% at 24,383.32 (close)
Shanghai > Composite: DOWN 1.0% at 3,521.26 (close)
London > FTSE 100: DOWN 0.4% at 7,531.88
New York > DOW: DOWN 0.5% at 36,113.62 (close)
- AFP with additional editing by Sean O’Meara