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Biden’s Warning Hauls Back Hong Kong as Asia Markets Slump
A rise in nflation has sparked speculation the Fed and other central banks could be forced to wind down their ultra-loose monetary policies.

• Virus fears and inflation concerns weigh heavy on region’s trading floors

• Hang Seng closes down 1.8% following US claims over territory’s future role

 

Asian markets sank on Monday following big losses on Wall Street as inflation and the spreading Delta coronavirus variant fuelled worries about the global recovery.

Hong Kong was the worst hit after the United States warned businesses about the “growing risks” of operating in the city as China tightens its grip, raising concerns about its future as a financial hub.

With vaccines being rolled out around the world and some governments easing lockdowns, equities enjoyed a healthy first half of 2021, with many markets hitting records or multi-year highs as traders bet on a strong rebound from the pandemic.

 

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But the spread of the highly transmissible Delta variant has thrown a spanner in the works as leaders in several countries – particularly those with slow inoculation programmes – reimpose lockdowns and other containment measures.

Meanwhile, a surge in inflation has rekindled speculation the Federal Reserve and other central banks could be forced to wind down their ultra-loose monetary policies and raise interest rates sooner than expected.

Treasury Secretary Janet Yellen last Thursday warned that price rises will continue to be strong for the next few months but that they would eventually slow.

“Markets are… dealing with a burst of inflation pressure that hasn’t been observed for quite some time,” said Michael Hood at JP Morgan Asset Management.

 

‘VAGUE FRAMEWORK’

He said there was “uncertainty about whether it will be temporary or lasting, and a Federal Reserve that is viewing all this through the lens of an untested and somewhat vague new framework, which they’ve not been able to communicate very clearly about”.

After Wall Street’s sharp losses, Asia followed suit on Monday and Hong Kong suffered with traders also weighing the US advisory on doing business there in light of China’s clampdown.

The much-anticipated report acknowledged the former British colony “retains many economic distinctions” from the mainland, including stronger protections of intellectual property, but raised concerns about the fragile working environment following the introduction of a national security law last year.

The Hang Seng Index sank 1.84%, or 514.90 points, to close at 27,489.78 on Monday. The benchmark Shanghai Composite Index was flat, inching down 0.18 points to 3,539.12, while the Shenzhen Composite Index on China’s second exchange dipped 0.07%, or 1.74 points, to 2,452.32.

 

OIL STAND-OFF ENDS

Tokyo, Sydney, Singapore, Seoul, Mumbai, Manila, Bangkok, Taipei, Jakarta and Wellington were also in the red.

The benchmark Nikkei 225 index dropped 1.25%, or 350.34 points, to 27,652.74, closing down for a fourth-straight session. The broader Topix index lost 1.30%, or 25.06 points, to 1,907.13.

Energy firms were among those suffering selling pressure after OPEC and other major producers finally reached a deal Sunday to pump more oil, bringing an end to a stand-off and sending prices down.

 

LOW SUPPLIES

The OPEC+ meeting agreed to produce an extra 400,000 barrels per day a month from August to meet rising demand and temper price rises.

Negotiations on easing production cuts became deadlocked earlier in July owing to a row between the world’s largest oil exporter Saudi Arabia and neighbour the United Arab Emirates.

Prices have been rallying in recent months as traders fretted over low supplies and improving demand.

 

MARKETS
Tokyo – Nikkei 225: DOWN 1.3% at 27,652.74 (close)
Hong Kong – Hang Seng Index: DOWN 1.8% at 27,489.78 (close)
Shanghai – Composite: FLAT at 3,539.12 (close)
New York – Dow: DOWN 0.9% at 34,687.85 (close)

 

  • Reporting by AFP

 

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