Asian markets were mixed on Thursday as investors took a breather after the latest rally, while they try to assess when the Federal Reserve will begin to wind down its vast monetary easing programme.
After a troubled start to the week, equities across much of the region have enjoyed healthy gains the past two days as US central bank chiefs looked to temper fears that record-low interest rates and colossal bond-buying were in their final throes.
Traders have for months worried that the blistering global recovery will fan inflation and force officials to act. And the Fed – which has consistently said recent inflation spikes were temporary and it will maintain its policy as long as the economy needs – last Wednesday suggested for the first time it could lift borrowing costs in 2023, a year earlier than initially targeted.
The Fed – which has consistently said recent inflation spikes were temporary and it will maintain its policy as long as the economy needs – last Wednesday suggested for the first time it could lift borrowing costs in 2023, a year earlier than initially targeted
The past few days have seen a number of top officials try to tame expectations, which provided some solace, but traders remain nervous.
On Wall Street, the Dow and S&P 500 closed slightly lower, though the Nasdaq ended at another record high. Asian investors jockeyed for position, with markets fluctuating. Tokyo, Hong Kong, Singapore, Seoul, Taipei and Jakarta all rose but Sydney, Shanghai, Wellington and Manila fell.
On Wednesday, a couple of Fed officials made their case for possibly tapering the bond-buying scheme by the end of this year.
Dallas Fed chief Robert Kaplan saw rate hikes as early as next year owing to the strong economic recovery and a wind-down of bond-buying soon.
2022 rate hike eyed
“As we make substantial further progress, which I think will happen sooner than people expect... I think we’d be far better off, from a risk-management point of view, beginning to adjust these purchases of Treasuries and mortgage-backed securities,” he told Bloomberg News.
Beginning the taper earlier would provide more flexibility on future rate increases, he said. He forecast inflation to hit 3.4 per cent this year and 2.4 per cent next year. The Fed’s official target is two per cent.
Meanwhile, Atlanta Fed boss Raphael Bostic suggested a slowdown in bond-buying in the next few months while he predicted a rate hike next year and two in 2023.
National Australia Bank’s Tapas Strickland said that while there appeared to be no major reaction to Bostic’s comments, his “move from dove to slightly hawkish should be noted and suggests a 2022 hike is a real possibility if the data makes a case for it”.
Still, OANDA’s Edward Moya added: “The Fed is still far away from substantial progress with the labour market, so Wall Street should not expect any tapering announcement until after summer is over.”
Oil prices dipped slightly after Saudi Arabia’s energy minister Prince Abdulaziz bin Salman said OPEC and other major producers had a part in “taming and containing, by making sure that this market doesn’t get out of hand”. The sharp rise in commodities this year has played a key role in the spike in inflation.
His comments come just ahead of the latest output policy meeting of the group and as crude prices sit around multi-year highs and some analysts have forecast they could possibly go as high as $100 as demand continues to pick up with the global recovery.