HONG KONG: Asian markets retreated on Tuesday as investors grew increasingly concerned that the Federal Reserve plans to scale back its financial support measures and raise interest rates within months.
While the fast-spreading Omicron variant of the coronavirus has made nerves, traders are now embracing the end of a pandemic era of ultra-cheap cash that has helped the economy recover and fueled a nearly two-year global rally.
A pick-up in consumer activity, soaring wages, disrupted supply chains and rising energy costs have combined to push inflation to levels not seen in a generation in several countries, increasing pressure on central bankers to act before they get out of hand.
Several countries have already started hiking borrowing costs but all eyes are on the US Federal Reserve as it tees up its first move, with commentators predicting that to come in March, followed by two or three more by the end of the year.
In remarks released ahead of his Senate confirmation hearing on Tuesday, boss Jerome Powell said the bank was ready to act.
“We will use our tools to support the economy and a strong labour market and to prevent higher inflation from becoming entrenched,” his opening statement said.
“We can begin to see that the post-pandemic economy is likely to be different in some respects. The pursuit of our goals will need to take these differences into account.”
Data on Friday showed fewer jobs were created than expected in December, but there were many vacancies and wages soared, suggesting further upward pressure on prices.
Traders are now cautiously awaiting Wednesday’s U.S. inflation data, which could play a big role in the Fed’s thinking.
The prospect of higher interest rates rattled U.S. markets at the start of the year. The Nasdaq has fallen more than 4% as tech companies are more vulnerable due to their reliance on debt to fuel growth.
While the tech-heavy index inched up slightly Monday, the S&P 500 and Dow closed in the red, though late dip-buying helped them recover from early steep losses.
Asia also suffered in early exchanges, with Tokyo returning from a long weekend break to end the morning lower, while Hong Kong, Shanghai, Sydney, Seoul, Wellington and Taipei also slipped.
Singapore and Manila were flat, though Jakarta rose.
“We think eventually this market will shift back toward growth, but we still got some wood to chop there; the valuations haven’t corrected,” Lori Calvasina of RBC Capital Markets told Bloomberg Television.
“This is a repricing. It’s painful, it has a little bit more ways to go.”