HONG KONG: Asian markets tumbled on Tuesday following a highly volatile day on Wall Street as worries about the Federal Reserve’s plans to raise interest rates intensified, with its upcoming two-day policy meeting in the spotlight.
A disappointing start to the corporate earnings season, growing concerns about a Russian troop increase on the Ukrainian border and warnings of a possible invasion also weighed on sentiment.
After playing down a surge in commodity prices for much of last year, the Fed has taken a sharply hawkish stance on monetary policy in recent months as officials hope to rein in inflation — the highest in four years — under control.
Minutes of the most recent meeting showed it would start raising rates in March and add three or possibly four more by the end of the year. On top of that, it plans to start dumping its massive bond holdings.
But while the move to battle runaway prices is seen as crucial, the end of the era of ultra-cheap cash for investors has rattled markets after almost two years of uninterrupted gains to record or multi-month highs.
All attention is on the Fed gathering that starts later in the day, with investors poring over every word from the bank’s statement and boss Jerome Powell’s subsequent news conference.
“The Fed is scrambling to control inflation and markets have gone from expecting a gradual interest rate hiking cycle to an accelerated tightening action until inflation eases,” said OANDA’s Edward Moya.
“Some economists think the Fed needs a half-point rate increase in March to show they are serious about tackling inflation and signal that more are coming.”
He added that officials need to “send the message that they are dealing with inflation, but they don’t need to over-promise. The Fed’s best option is to signal that they will raise rates by 25 basis points in March and another in May. A signal of a rate hike. .. Inflation may peak at that point and may not need to be as aggressive going forward.”
Wall Street’s three major indexes have had a particularly rough time, with the Nasdaq down more than 10% from its recent high and in correction territory.
They saw some wild swings on Monday, suffered intraday losses before buying the dip, and they all surged into positive territory in the final hour. London, Paris and Frankfurt are in trouble without any recovery.
“Volatility is back,” Lori Calvasina of RBC Capital Markets told Bloomberg Television. “We’re going through a sea change in terms of Fed policy. And frankly, equity investors have been lagging in predicting what’s to come, so there’s a lot going on.”
Asia got off to a good start on Tuesday, with Tokyo down 2%, while Hong Kong, Singapore and Taipei fell more than 1%.
Sydney fell more than 2 per cent after higher-than-expected Australian inflation data boosted bets on the country’s central bank raising interest rates. Seoul fell more than 2%, while Shanghai, Wellington and Jakarta also fell.
While the long-term outlook for the market remains positive due to reopenings, vaccination programs and a less severe variant of Omicron, many are also warning of more near-term volatility.
“I’m still very bullish on long-term stocks, but I think the next two or three moon.
“We have to get used to the fact that the Fed is going to be more hawkish.”