Tech firms led losses across Asian markets on Thursday following a painful sell-off in New York fuelled by bets that the Federal Reserve will embark on an aggressive campaign against soaring inflation by hiking interest rates several times.
The much-anticipated release of minutes from the US central bank’s December policy meeting showed that while officials were concerned about the fast-spreading Omicron coronavirus variant, they were confident the world’s top economy was in rude health and able to absorb high borrowing costs.
The Federal Open Market Committee has already started winding back the vast bond-buying stimulus put in place at the start of the pandemic as price rises remain stubbornly high, with the programme due to end in March. Traders had widely expected the bank to then start lifting rates.
Policymakers had said they would not remove their support until the Fed was happy it had unemployment tamed and inflation was running persistently hot. Both appear to have been achieved or close to it.
Now officials are ready to act, with the Fed minutes saying: “It may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.”
The move away from massive central bank support around the world, particularly from the Fed, has rattled markets in recent months – having notched up a series of records or multi-year highs on the cheap cash. With the punch bowl being taken away, traders are in retreat, particularly those invested in tech firms, which are more susceptible to higher interest rates owing to their reliance on borrowing to fuel growth.
With the punch bowl being taken away, traders are in retreat, particularly those invested in tech firms, which are more susceptible to higher interest rates owing to their reliance on borrowing to fuel growth
On Wall Street, the Nasdaq plunged more than three per cent, while the Dow and S&P 500, which both started the week with new records, lost more than one per cent.
More volatility in store
And Asia tracked the selling. Tokyo led losses, falling almost three per cent, while Sydney was off almost as much. Seoul, Wellington, Bangkok and Mumbai gave up more than one per cent each. Hong Kong, Shanghai, Taipei, Manila and Jakarta were also down.
Tech firms were among the worst-hit. In Japan, Sony dived 6.9 per cent and Tokyo Electron more than three per cent, while Kakao Corp fell 5.2 per cent in Seoul.
Hong Kong’s tech gauge extended Wednesday’s plunge of more than four per cent, with dealers there also worried about Beijing’s crackdown on the sector.
“The Fed is going to be raising rates this year, perhaps more aggressively than many thought,” said Mark Freeman, of Socorro Asset Management. “In many of these tech names, there is little support from the long-only community so it doesn’t take much selling pressure to push the names sharply lower, which in turn forces more selling by the hedge funds.”
And Carol Schleif, of BMO Family Office, warned of more trouble ahead. “We are prepping people for volatility,” she told Bloomberg Television. “You had another record double-digit year and yet investors’ mood is pretty dour. We definitely think the readjustment of the volatility will increase this year because there is a lot to be dealt with. You do have a levelling off of some things, improvement in some things and people are going to be watching both the Fed and company earnings.”
But other analysts said they still expected the bank to take a measured approach to tightening, with Bank of Singapore’s Mansoor Mohi-uddin forecasting three hikes between June and the end of the year.
The prospect of higher rates also weighed on other assets.Oil shed nearly one per cent, with concerns about virus lockdowns in China weighing on demand optimism.
Bitcoin dropped to $42,506 at one point, its weakest level since a flash crash at the start of December, and well down from the record near $69,000 seen in November.