Asia’s major markets retreated on Tuesday with traders preoccupied by this week’s key central bank meetings that are expected to see the beginning of the end of pandemic financial support.
Rising inflation and supply chain issues also weighed across the region despite another record close on Wall Street thanks to a strong earnings season that has seen the vast majority of companies beat expectations.
However, a promising start in early trade gave way to selling as traders remained on edge about the outlook with Hong Kong and Shanghai distracted by the latest Covid outbreaks in China that has led authorities to reimpose strict containment measures.
Similar moves in the country earlier this year led to a sharp drop in economic activity and dragged growth down.
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Hong Kong, Shanghai, Sydney, Tokyo, Wellington, Mumbai and Jakarta all fell while Taipei was marginally down. Singapore, Seoul, Manila and Bangkok edged up.
The Hang Seng Index slipped 0.22%, or 54.65 points, to 25,099.67. The Shanghai Composite Index sank 1.10%, or 38.85 points, to 3,505.63, while the Shenzhen Composite Index on China’s second exchange lost 0.81%, or 19.51 points, to 2,392.27.
The benchmark Nikkei 225 slid 0.43% or 126.18 points to end at 29,520.90, while the broader Topix index fell 0.64% or 13.05 points to 2,031.67.
Still, analysts remain buoyant about the longer term outlook for markets. “We are now in the midst of an early ‘January effect’ and I expect that this will continue through Thanksgiving,” markets strategist Louis Navellier said.
“However, December is also a seasonally strong month and January is typically stronger, so we have three months of seasonal strength to look forward to.
“In the meantime, we are still in the midst of wave after wave of better than expected third-quarter earnings announcements, so enjoy the ride.”
Cheap Cash Era
Attention will now turn to the central banks’ policy meetings this week. With several countries already starting to lift interest rates, traders are now preparing for the end of the cheap cash era, which has helped propel markets to record or multi-year highs.
On Tuesday the Reserve Bank of Australia said it would no longer artificially maintain low yields on three-year bonds, making it the latest to step back from its easy money strategy, while the Bank of England is tipped to hike borrowing costs on Thursday.
But the Federal Reserve’s gathering on Wednesday is the main focus of attention. US authorities are forecast to start tapering their bond-buying programme this month but observers said the board’s timeline on raising borrowing costs will be top of the agenda.
The main focus of the meeting “will be much more on the Fed’s inflation stance than tapering,” Steve Englander, of Standard Chartered Bank, said.
‘Recovery Remains Fragile’
“The elephant in the room is headline and underlying inflation, which are higher than the [Fed policy board] was anticipating.”
And Jeffrey Halley of OANDA said tapering monetary policies was needed now. “I have no argument with leaving policy rates around the world at record lows, despite the recovery noise in the data globally, the recovery remains fragile,” he said in a note.
“What needs to end is the quantitative easing… which while necessary as a monetary tactical strike during the height of the pandemic, has quickly reached its use-by date.”
The release of US employment figures on Friday will also be followed for a fresh idea about the impact of inflation and Covid infections on the jobs market.
MARKETS
Tokyo > Nikkei 225: DOWN 0.4% at 29,520.90 (close)
Hong Kong > Hang Seng Index: DOWN 0.2% at 25,099.67 (close)
Shanghai > Composite: DOWN 1.1% at 3,505.63 (close)
New York > Dow: UP 0.3% at 35,913.84 (close)
- AFP with additional editing by Sean O’Meara
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