HONG KONG: Asian markets on Wednesday got some respite from a heavy sell-off earlier in the week, with the focus on the Federal Reserve’s policy meeting later in the day, when traders hope it will provide much-needed guidance on its plans. Raise interest rates.
After weeks of uncertainty, the U.S. central bank will finally have its say on the state of the world’s top economies and how officials plan to deal with inflation, now at a 40-year high, without compromising its recovery.
Minutes from its December gathering pointed to a more hawkish tilt, with plans to speed up the taper of its vast bond-buying programme, the selling of the assets it already has and three or four rate increases before the end of the year.
While boss Jerome Powell pledged any tightening would be carefully calibrated, the prospect of higher borrowing costs has rattled markets across the world with most key indexes deep in the red from the start of the year, with Wall Street particularly hard hit.
His comments after the meeting will be pored over for signs of the Fed’s plans, which most commentators believe include a first hike in March.
Analysts were optimistic ahead of the meeting.
Frances Stacy of Optimal Capital told Bloomberg Television that Powell will try to take a less hawkish tone, saying policy will be guided by data, while supply chains are improving and inflation is showing signs of peaking.
“I think what that’s going to do is potentially reassure markets that the Fed put is ready, willing and able,” she said, referring to the bank’s past in backstopping markets. “That could cause some serious enthusiasm and a short squeeze.”
And Standard Chartered Bank’s Steven Englander concurred, adding that “a moderately hawkish Powell would be dovish in market terms”.
Meanwhile, markets strategist Louis Navellier saw three rate hikes this year and that after the recent bout of selling across markets, buying opportunities were emerging.
“I’m very comfortable that we are going to have a bottom here soon. Remember, the market is a manic crowd,” he said in a note.
After a second day of high volatility in New York, Asia enjoyed a little more calm in the morning.
Hong Kong, Shanghai, Singapore, Seoul, Wellington, Taipei and Jakarta all rose, though Tokyo and Manila edged down.
However, while analysts remained upbeat about the outlook, the International Monetary Fund on Tuesday downgraded its global growth outlook, saying it was “in a weaker position than previously expected” at the start of the year.
It said Omicron threatened to hamper the recovery as countries implemented containment measures, while other issues remained, including inflation and geopolitical tensions.
Among those tensions are the standoff over Ukraine’s border with Russia, where Moscow is increasing its troop numbers and the US-led West has warned that the risk of an invasion “remains imminent”.
U.S. President Joe Biden said the move would have “tremendous consequences” and even “change the world,” adding that he would consider imposing direct sanctions on Russian President Vladimir Putin on top of a series of measures.