Most Asian markets retreat as Fed prepares faster taper

(AFP)

HONG KONG – Asian markets mostly fell Wednesday as investors nervously awaited the outcome of the Federal Reserve’s latest policy meeting where it is expected to announce a speedier withdrawal of its massive financial support, just as the Omicron variant fans concerns about the economic recovery.

Pressure is mounting on central banks around the world to act in order to get a grip on runaway inflation, which has been sent soaring this year by a spike in energy prices, long-running supply chain snags and surging demand.

Data last week showed US consumer prices rose in November at their fastest pace in four decades, all but confirming that the Fed will aim to end its vast bond-buying programme sooner than expected, allowing it to begin lifting interest rates by mid-2022.

The prospect of the end of central bank largesse — put in place at the start of the pandemic — has been a huge drag on global equity markets for the past few months, bringing an end to a rally that saw many markets hit record or multi-year highs.

“The market is already expecting a faster… tapering to be announced and currently prices around three Fed hikes in 2022,” said National Australia Bank’s Rodrigo Catril.

“The (policy board) will also deliver a new set of forecasts, with the last two iterations in June and September resulting in economic upgrades with projected rate hikes brought forward.

“The data flow since June has essentially provided more evidence of inflationary pressures, thus the question is how much more hawkish is the Fed pivot going to be.”

However, OANDA’s Edward Moya added that there is a concern that the bank could make a wrong move, having finally rowed back on its long-running assertion inflation would only be temporary.

“The biggest worry for investors still remains that of a policy mistake by the Fed and that answer won’t happen until after the (policy) decision” and news conference, he said.

The Fed decision later Wednesday will be followed by the European Central Bank (ECB) and the Bank of England on Thursday.

Oil prices drop further

After a day of selling on Wall Street, led by tech firms that are more susceptible to higher interest rates, Asia mostly struggled.

Tokyo, Sydney, Seoul, Singapore, Seoul, Wellington and Bangkok all fell, while Shanghai was marginally down. Still, Hong Kong edged up after three days of losses, while Taipei, Manila and Jakarta also saw small gains.

Adding to the broadly downbeat mood is the surge in infections caused by the Omicron variant, which has forced governments around the world to reintroduce fresh containment measures, threatening to deal a blow to the already fragile economic rebound.

While the World Health Organization said Africa — where the strain was first recorded — had recorded a massive rise in cases over the past week but seen a lower number of deaths compared with previous waves, it urged swift action to rein in transmissions and warned against complacency.

Meanwhile, Pfizer said clinical trials of its Covid pill reduced hospital admissions and deaths among at-risk people by almost 90 percent.

“We expect the markets to be volatile primarily because of the back and forth on the Covid news” and “worries again about inflation”, Rebecca Felton of RiverFront Investment Group told Bloomberg Television.

“High valuations and uneven data are probably what we are going to see for the next couple of months.”

Fears about a drop in demand as travel between countries is slimmed down to prevent Omicron spreading has hit oil prices, with both main contracts sharply down from their recent highs hit in October.

And they fell further on Wednesday, losing more than one percent.

Key figures around 0310 GMT

Tokyo – Nikkei 225: DOWN 0.1 percent at 28,409.40 (break)

Hong Kong – Hang Seng Index: UP 0.2 percent at 23,684.67

Shanghai – Composite: FLAT at 3,661.21

Euro/dollar: DOWN at $1.1259 from $1.1261 at 2110 GMT

Pound/dollar: DOWN at $1.3224 from $1.3228

Euro/pound: UP at 85.12 pence from 85.06 pence

Dollar/yen: DOWN at 113.72 from 113.74 yen

West Texas Intermediate: DOWN 1.4 percent at $69.72 per barrel

Brent North Sea crude: DOWN 1.3 percent at $72.71 per barrel

New York – Dow: DOWN 0.3 percent at 35,544.18 (close)

London – FTSE 100: DOWN 0.2 percent at 7,218.64 (close)

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