Nikkei leads Asian markets' bounce-back as Fed worries ease

Investors appeared reassured central banks won’t be pushing up interest rates any time soon and that leading economies’ pace of growth will continue

Most of Asia’s markets rebounded on Tuesday as concerns about the pace of expected Federal Reserve monetary tightening eased.

Regional investors were sent scurrying on Monday as they contemplated the US central bank’s latest projections for hiking interest rates in light of the country’s blockbuster economic recovery and sharp spike in inflation.

The Fed’s “dot plot” forecast indicated lift-off in 2023 – a year earlier than first flagged – with some policymakers eyeing the end of 2022, while discussions on winding down its vast bond-buying programme are likely in the next few months.

Also on AF: China’s renewables lead the world by far, but it’s still not enough

Ultra-loose monetary policy by the Fed and other central banks, along with massive government spending, have been key pillars of the rally across global equities enjoyed since their nadir in April last year.

Observers said sharp losses in New York on Friday were largely reversed at the start of this week as traders may have felt they had oversold, with the general consensus still that the world economy is well on the road to recovery and accommodative policies will remain in place for the time being.

“The bigger picture is that the Fed is just beginning to adjust its policy stance,” Chris Iggo, at AXA Investment Managers, said. “The overall level of rates and liquidity should stay supportive for markets, but maybe less so than has been the case over the last year.”

Tokyo led Asian gains, rallying more than 3% and almost wiping out Monday’s losses, while Sydney and Jakarta were up more than 1%. Shanghai, Seoul, Taipei, Wellington, Mumbai, Manila, Bangkok and Jakarta also rose, though Hong Kong and Singapore struggled.

‘FREE MONEY’

“If there is one thing the last 15 months has taught us, it is the power of the ‘buy the dip’ strategy as central banks continue pouring free money into the world’s financial system,” said OANDA’s Jeffrey Halley.

Analysts said there was a lower level of angst on trading floors after less hawkish comments from a number of Fed policymakers.

Fed boss Jerome Powell, in prepared remarks ahead of a House hearing Tuesday, pledged again the bank’s continued support to ensure the “sustained improvement” in the economy is extended.

Bitcoin regained some ground on Tuesday, a day after touching a two-week low after China’s central bank reaffirmed a crackdown on cryptocurrencies and restricted trading channels for Chinese residents.

CRPTO CRACKDOWN

The world’s largest crypto currency was last up 4.58% at $33,000, having dropped more than 10% on Monday. Ether, the second-biggest crypto currency, was up 5.05% at $1,983 after hitting a five-week low the day before.

Monday’s sell-off was sparked by an announcement from the Peoples Bank of China saying it had summoned China’s largest banks and payment firms urging them to crack down harder on cryptocurrency trading.

Brent crude prices dipped slightly, having earlier in the day broken above $75 for the first time since April 2019 as investors eye a surge in demand for the commodity as the global economy reopens, with strong rebounds in the United States, Europe and China major catalysts.

MARKETS
Tokyo – Nikkei 225: UP 3.1% at 28,884.13 (close)
Hong Kong – Hang Seng Index: DOWN 0.6% at 28,309.76 (close)
Shanghai – Composite: UP 0.8% at 3,557.41 (close)
New York – Dow: UP 1.8% at 33,876.97 (close)