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Oil Prices, Inflation, Tapering Weigh On Asian Markets

Soaring costs fuelled by oil’s continuing advances have unsettled traders across the region who now fear imminent interest rate rises


Japan stock board
Hong Kong, Shanghai, Singapore, Wellington and Mumbai all rose but Tokyo and Taipei dipped. Photo: Reuters

 

Most of Asia’s major markets made small progress on Wednesday but inflation worries and expectations of tighter central bank monetary policy sparked a plunge in Tokyo tech shares.

Inflation fears and oil price concerns were also weighing on traders’ minds as crude extended its recent gains despite US moves to boost output.

Oil surged on Tuesday in reaction to news that the United States and other countries would release less from their stockpiles than expected, dealing a blow to hopes of tempering a price spike that is fuelling inflation.

The announcement from Washington, which President Joe Biden said was taken in conjunction with China, India, Japan, South Korea and Britain, had been flagged well in advance, which analysts said had been part of the reason for a dip in the crude market in recent weeks.

 

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Brent surged more than 3% and WTI more than 2% on Tuesday and the buying carried on in Asian trade, with concern now building that OPEC and other major producers will rethink their plan to slowly reopen the taps.

The rise in oil prices added to concerns that inflation – already at multi-year highs – will continue to rise, putting further pressure on banks to scale back the easy money policies put in place at the start of the pandemic and crucial to an 18-month market rally.

The New Zealand central bank lifted its rates on Wednesday for a second successive month.

But all eyes are on the Federal Reserve, which some observers have said could taper its bond-buying programme quicker than first flagged and hike interest rates next year.

Minutes from the Fed’s November policy meeting will be assessed when they are released later in the day for an idea about officials’ thinking. Economic growth and jobless claims will also be unveiled along with a closely followed reading on consumer sentiment.

Hong Kong, Shanghai, Singapore, Wellington, Manila, Mumbai, Bangkok and Jakarta all rose but Tokyo, Sydney, Seoul and Taipei dipped.

 

Europe’s Covid Surge

The Hang Seng Index edged up 0.14%, or 33.92 points, to 24,685.50. The Shanghai Composite Index added 0.10%, or 3.61 points, to 3,592.70, while the Shenzhen Composite Index on China’s second exchange was flat, inching up 0.11 points to 2,520.48.

The benchmark Nikkei 225 index, however, lost 1.58%, or 471.45 points, to end at 29,302.66, while the broader Topix index fell 1.16%, or 23.70 points, to 2,019.12 with chip-related shares and stocks in growing companies sold off the back of higher US interest rates fears.

Investors are also keeping a wary eye on developments in Europe, where several countries have introduced strict containment measures to fight a resurgence of Covid, with Austria returning to a partial lockdown and some fearing Germany, the continent’s biggest economy, will follow suit.

On currency markets, the Turkish lira remained wedged close to all-time lows against the dollar after Recep Tayyip Erdogan dug in on his decision to pressure the central bank last Thursday to cut interest rates, despite soaring inflation.

The president is notorious for his unorthodox belief that high interest rates cause inflation instead of helping ramp it down.

 

MARKETS

Tokyo > Nikkei 225: DOWN 1.6% at 29,302.66 (close)

Hong Kong > Hang Seng Index: UP 0.1% at 24,685.50 (close)

Shanghai > Composite: UP 0.1% at 3,592.70(close)

New York > Dow: UP 0.5% at 35,813.80 (close)

 

  • AFP with additional editing by Sean O’Meara

 

 

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Sean OMeara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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