HONG KONG: Asian markets were mixed on Friday, as the Federal Reserve issued a notice that the days of ultra-cheap cash are coming to an end sooner than some thought, at the end of a week that caused widespread disruption to investors around the world.
Rising tensions between Russia and the West over the Ukraine crisis have fueled sentiment on trading floors, with a selling frenzy this month costing global valuations about $7 trillion.
While recent data showed the economy picking up as it reopened and the threat of Covid-19 abated, commentators warned that volatility seen in recent months could persist in the short term as the Federal Reserve tightens policy.
The Federal Reserve has taken a more hawkish stance in recent weeks, hoping to fight four years of high inflation by raising interest rates and selling off huge bonds that help keep costs down.
Officials plan to raise rates in March, but now the debate among investors is about how much and how much. Some have suggested a 50 basis point hike by 2023 and possibly another 5 basis points.
Federal Reserve Chairman Jerome Powell commented this week that the economy, which grew last year at the fastest pace since the 1980s, is bracing itself for tightening.
Markets have rallied to record or multi-year highs for most of two years, with analysts saying a sharp pullback is expected due to profit-taking and the withdrawal of central bank and government stimulus during the pandemic.
“Really what we are seeing is historic intraday volatility,” Chris Murphy, of Susquehanna International Group, told Bloomberg Television. “It’s been a pretty amazing ride so far this year.”
And Federated Hermes senior global equities portfolio manager Lewis Grant said the Covid threat looked like being replaced by a “fractious geo-political landscape”.
“Global supply chain disruptions look to worsen as the relationship between Russia and the West deteriorates” as Moscow massed troops on Ukraine’s border.
“Russia’s supply of natural gas to Western Europe could further spark volatility across financial markets and as we turn the corner on the pandemic we now see a possible conflict as one of the biggest threats to markets in 2022,” he warned.
On Wall Street, all three main indexes ended in the red — reversing early gains as they had the day before — with the Nasdaq leading the way again as tech firms are more susceptible to higher borrowing costs.
Asia fared slightly better, supported by bargain hunting after sharp losses on Thursday.
Tokyo and Sydney each rose about 2%, while Singapore, Seoul, Manila and Jakarta also rose.
But Hong Kong lost more than one percent, while Shanghai and Wellington were also deep in negative territory.
Still, markets strategist Louis Navellier remains upbeat.
“While the Fed’s intention of getting tougher on inflation will likely result in interest rates creeping up, the reopening of the US and global economies post-pandemic should result in upside growth surprises,” he said in a note.
“Already Covid hospitalisation rates have peaked and are falling, and health restrictions are being lifted in many locations.
“The recent volatility may continue to play out as the Fed officially takes away the punch bowl of monetary support, but growth should continue to offset inflation and interest rate increases.”