HONG KONG, Jan 19 — Growing fears about the US Federal Reserve’s plans to fight surging inflation by ramping up interest rates hit Asian markets again today following a hefty sell-off on Wall Street, while oil prices extended their rally after a blast at a key pipeline.
A rise in prices since early 2021 has forced central banks around the world to start winding back the colossal financial support put in place at the start of the pandemic, with many warning that failure to act could see them run out of control.
Finance chiefs in several countries — including at the Bank of England — have already put the wheels in motion, but the main focus is on the Fed — the central bank of the world’s biggest economy — which has so far refrained from lifting rates, until now.
Officials are currently reining in their massive bond-buying programme and aim to hike borrowing costs in March.
But while Fed boss Jerome Powell has said the policy board will be careful in its approach and mindful not to jeopardise the economic recovery, there is a worry it will have to be more aggressive than initially thought to bring inflation down from four-decade highs.
Some commentators are predicting a 50 basis-point rise in March — which would be the first that big since 2000 — having initially estimated 25 points.
Expectations for a quick run-up in costs has sent Treasury yields rocketing and caused near-panic on equity markets, with all three main indexes on Wall Street deep in the red so far this year, having hit multiple records in 2021.
US Treasury yields were pushing closer towards two per cent and today, German Bund yields passed into positive territory for the first time since May 2019.
Sony, Toyota plunge
The stock market losses in New York continued in most of Asia today.
Tokyo shed 2.8 per cent, compounded by steep falls in market heavyweights Sony and Toyota.
Sony collapsed almost 13 per cent — its biggest drop since 2008 — on news that rival Microsoft would pay US$69 billion (RM289 billion) for US gaming giant Activision Blizzard, betting big on the sector.
Toyota dived five per cent after warning that it expected to miss its production target for this fiscal year.
Sydney, Seoul, Singapore, Wellington, Taipei, Manila and Jakarta were also in retreat.
“Generally, we do expect to see that the bond market is going to drive volatility, more broadly based, across the equity markets and other markets as well,” Winnie Cisar, at CreditSights, told Bloomberg Television.
However, Hong Kong edged up by the end following remarks from the Chinese central bank hinting it would unveil fresh economy-supporting measures, having cut interest rates on Monday for the first time since the start of the pandemic.
Shanghai closed in negative territory.
London opened lower as data showed UK inflation hit a 30-year high in December. Paris and Frankfurt also fell.
While markets are suffering heavy volatility, there remains a broad belief that the global recovery is still on track as economies reopen and fears over the less-severe Omicron coronavirus variant recede.
And a major sign of that is oil, which rallied again today a day after both contracts hit more than seven-year highs on the back of demand optimism.
The surge was given extra impetus by news of an explosion at a key pipeline running from Iraq to Turkey that transports more than 450,000 barrels a day, according to Bloomberg News.
That came a day after Yemen’s Houthi rebels in Abu Dhabi claimed an attack that triggered a fuel tank blast, and warned civilians and foreign firms in the oil-rich United Arab Emirates to avoid “vital installations”.
“It’s a perfect storm,” said Vandana Hari of Vanda Insights.
“A bunch of supply disruptions, lingering Opec+ production shortfalls and heightened geopolitical tensions. Plus there’s low inventory levels combining with robust demand.”
Key figures around 0820 GMT
Tokyo — Nikkei 225: DOWN 2.8 per cent at 27,467.23 (close)
Hong Kong — Hang Seng Index: UP 0.1 per cent at 24,127.85 (close)
Shanghai — Composite: DOWN 0.3 per cent at 3,558.18 (close)
London — FTSE 100: DOWN 0.4 per cent at 7,533.14
Brent North Sea crude: UP 0.5 per cent at US$87.92 per barrel
West Texas Intermediate: UP 0.7 per cent at US$86.05 per barrel
Dollar/yen: DOWN at 114.38 yen from 114.60 yen late Tuesday
Euro/dollar: UP at US$1.1334 from US$1.1325
Pound/dollar: DOWN at US$1.3595 from US$1.3598
Euro/pound: UP at 83.29 pence from 83.28 pence
New York — Dow: DOWN 1.5 per cent at 35,368.47 (close) — AFP
