Markets see-saw after Fed rate forecasts soothe inflation fears

Traders were in calmer mood on Friday with tensions eased by Washington’s interest rate predictions which dealt with worries about runaway prices scuppering the pandemic bounceback

Equity markets saw a mixed day on Friday but investors remained broadly optimistic, as concerns about runaway inflation and an overheating economy were soothed this week.

That was after Federal Reserve officials brought forward their forecasts for hiking interest rates with the American economy threatening to overheat.

With the post-pandemic recovery well under way in most countries as vaccines roll out and containment measures are eased, the general mood across trading floors was positive and observers are predicting equities will continue the rally that started in April 2020.

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The blockbuster growth enjoyed this year has been tempered by worries that a surge in buying, spurred by pent-up demand for goods, would combine with supply constraints and bottlenecks to send prices rocketing.

That, in turn, had raised concerns central banks would either have to tighten their ultra-loose monetary policies earlier than flagged or would move too slowly and let inflation run out of control, forcing them to hike rates at a sharper, quicker pace.

After Wednesday’s Fed meeting, officials’ “dot plot” forecast for rates showed they were now more likely to lift in 2023 – a year earlier than first suggested – soothing worries about runaway prices, for now. Some policymakers had projected lift-off as soon as 2022.

SHANGHAI FLAT

Asia mostly rose in the morning but struggled to hold gains as the day wore on. Hong Kong stocks finished higher on Friday with the Hang Seng Index up 0.85%, or 242.68 points, to 28,801.27.

The benchmark Shanghai Composite Index was flat, inching down 0.51 points to 3,525.10, while the Shenzhen Composite Index on China’s second exchange added 0.81 percent, or 19.21 points, to 2,378.61.

Tokyo stocks closed lower on Friday after a day of see-saw trading as investors locked in profits.

The benchmark Nikkei 225 index was down 0.19% or 54.25 points to end at 28,964.08, while the broader Topix index fell 0.87% or 17.01 points to 1,946.56.

GREENBACK RALLIES

Sydney, Singapore, Seoul and Wellington edged up, while Taipei, Manila and Mumbai were slightly lower.

The prospect of higher rates also sent the greenback rallying across the board and it maintained its strength on Friday in Asia.

But that, in turn, has weighed on dollar-priced commodities, with oil taking a hit over the past two days while metals have tumbled from recent record or multi-month highs.

And gold, a key go-to asset in times of high inflation, has also taken a hit, sinking more than five percent since Wednesday to a three-month low.

MARKETS

Tokyo – Nikkei 225: DOWN 0.2% at 28,964.08 (close)

Hong Kong – Hang Seng Index: UP 0.9% at 28,801.27 (close)

Shanghai – Composite: FLAT at 3,525.10 (close)

New York – Dow: DOWN 0.6% at 33,823.45 (close)