Asian markets in retreat as Fed officials fan rate hike fears

Asian markets mixed after Wall St gains as inflation fears ease

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HONG KONG: Asian markets were mixed on Thursday as traders struggled to maintain the previous day’s gains, but data suggesting U.S. inflation may be stabilizing provided some fresh cheer.

Prices rose 7 percent in December from a year earlier, the Labor Department said, the fastest pace since 1982, as a surge in demand for Americans to return to normalcy exacerbated tight supplies and energy costs.

However, the reading was in line with expectations and analysts pointed out that the increase from the previous month had slowed and was below forecasts, indicating that the rally may have peaked or was close to topping out.

US investors welcomed the news, with all three main indexes extending Tuesday’s gains that were fanned by Federal Reserve boss Jerome Powell pledging to rein in prices but do his utmost to nurture the economic recovery.

Markets had endured a torrid start to the year, particularly after Fed minutes last week showed a much more hawkish tilt by policymakers that many feared could see the bank remove financial support too quickly.

But Powell’s remarks and the latest data have soothed nerves considerably this week.

Still, there’s a lot of debate about how many times the bank will raise rates and when it will start cutting its massive bond holdings and which will help keep borrowing costs in check.

Jack Janasiewicz of Natixis Investment Managers Solutions wrote: “The Fed rate in March is almost a foregone conclusion. June is not far behind.

“But combine that with base effects (compared to last year’s high reading), coronavirus-related supply chain and labor market improvements, hawkish Fed rhetoric on inflation, balance sheet management, and some modest fiscal tightening, and we have It is very likely to see the inflation imprint start to slow to a rate that some were not expecting.”

He added: “At current levels, there is a lot of hawkishness. Maybe too much.”

Asian shares were volatile in early trade after rebounding on Wednesday.

Hong Kong, Sydney, Taipei and Manila rose, while Singapore and Wellington were flat.

Tokyo ended the morning lower as a stronger yen weighed on exporters, with Shanghai, Seoul and Jakarta slightly off.

But while the mood has improved on trading floors, there remain concerns that markets will not have an easy ride this year as the Fed removes the massive support that has helped drive a two-year markets rally and saw the economy through the pandemic.

“Inflation is going to be with us no matter if they increase rates and the challenges (to) the economy here are just going to build on that,” Shana Sissel, of Strategic Wealth Partners, told Bloomberg Television.

“I am concerned that there is going to be quite a bit of volatility in the market and our economy is going to slow down considerably.”

Oil prices edged lower after data showed U.S. inventories fell last week to their lowest since 2018, but maintained Wednesday’s gains, boosting hopes for demand in the world’s largest economy.

Warren Patterson of ING Groep NV said: “Supply disruptions, uncertainty over OPEC’s spare capacity and waning concerns about Omicron are all proving to be positive for prices. (Inventory) figures have further boosted prices.”

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