Asia markets drop as traders turn focus to Fed

Asian investors edged lower Wednesday
after a two-day advance with focus on the Federal Reserve’s crucial policy
meeting, which comes against a backdrop of heightened inflation fears fuelled
by an expected surge in economic activity this year.

While the battle against coronavirus continues to rage and some countries
reimpose containment measures, the rollout of vaccines, signs of slowing
infections and huge government and central bank largesse are providing
massive support to equities.

But that has also raised concerns about soaring prices and the prospect the
Fed will have to wind back the loose monetary policies — including record
low interest rates — that have powered a year-long rally.

US benchmark 10-year Treasury yields — a guide to future interest rates —
have risen to a one-year high in recent weeks.

Highlighting the importance of the issue to markets, a survey by Bank of
America Merril Lynch found that the virus as not traders’ main concern now.

“That honour goes to higher-than-expected inflation, with a bond market
tantrum at number two,” said Axi strategist Stephen Innes. “So indeed,
inflation tops the markets new ‘Wall of Worry’.”

With that in mind, the end of the Fed’s two-day policy meeting later in the
day and boss Jerome Powell’s comments have taken on increasing significance.

“The Fed will be loath to send any hawkish signal,” Innes added. “Still,
the board faces a tricky balancing act as incorporating the US stimulus into
their forecast will lower unemployment and push inflation over two percent in
2023.”

He added that this could mean a rate hike in two years.

After a tepid lead from Wall Street, Asia struggled, with Tokyo, Hong Kong,
Shanghai, Sydney, Seoul, Singapore, Taipei, Jakarta and Wellington all in the
red. There were gains in Taipei, Manila and Bangkok.

Tapas Strickland, at National Australia Bank, said: “There is the potential
for large moves in either direction with Powell needing to walk a fine line
of acknowledging the improvement (in the US economy), but also that the Fed
isn’t intending on changing its policy guidance.”

– Key figures around 0400 GMT –

Tokyo – Nikkei 225: DOWN 0.1 percent at 29,888.65

Hong Kong – Hang Seng: DOWN 0.1 percent at 29,000.18 (break)

Shanghai – Composite: DOWN 0.3 percent at 3,435.96 (break)

Euro/dollar: UP at $1.1905 from $1.1902 at 2100 GMT

Pound/dollar: DOWN at $1.3885 from $1.3889

Euro/pound: UP at 85.70 pence from 85.66 pence

Dollar/yen: UP at 109.07 yen from 109.00 yen

West Texas Intermediate: DOWN 0.1 percent at $64.76 per barrel

Brent North Sea crude: DOWN 0.2 percent at $68.26 per barrel

New York – Dow: DOWN 0.4 percent at 32,825.95 (close)

London – FTSE 100: UP 0.8 percent at 6,803.61 (close)