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Asian markets fell Thursday as hopes
for the global recovery and signs of a possible slowdown in new virus
infections play off against the prospect of an end to Federal Reserve
largesse and China’s regulatory clampdown.
Equities and oil have by and large enjoyed a positive week, helped by US
full approval of Pfizer-BioNTech’s vaccine and speculation the Fed will take
its time in removing its ultra-loose monetary policy whenever it begins to do
so.
However, while Wall Street continued to chalk up new records, Asian
investors shifted a little more cautiously as they assessed the outlook.
Top of the agenda this week is Fed boss Jerome Powell’s speech Friday to
the Jackson Hole symposium of central bankers and economists, which will be
closely followed for any indication about its policy plans in light of rising
inflation and the economic rebound.
The bank is widely expected to begin easing back on its vast bond-buying
programme by the end of the year, though the spread of the Delta variant and
its impact on growth has some observers and even hawkish Fed members
rethinking the wisdom of doing so.
Analysts said the speed and timing of a pullback could be crucial.
“When the Fed actually announces the taper, it will likely also give some
degree of information on what pace it will take and how flexible or
inflexible they want to be with the process,” Guneet Dhingra, at Morgan
Stanley, said.
“That could provide a key signal for the rate-hike cycle — particularly
with regard to the pace of the hikes.”
However, some warn that starting to taper too late could cause problems.
“It would be dangerous for the Fed to do this because it needs to be in a
position — from the middle of next year — to start putting out the rhetoric
that they may be raising rates,” said Steven Barrow, of Standard Bank Group.
“And we know it’s not out of the realm of possibilities that the Fed could
lift rates some time around the end of next year. So I’m focused more on the
end point for Fed tapering than the starting point.”
In early trade, Asian investors took a step back with Hong Kong, Shanghai,
Tokyo, Sydney, Singapore, Wellington, Taipei and Jakarta all down.
Seoul was also in the red after South Korea became one of the first major
economies to start lifting interest rates since they were cut to record lows
last year to battle the coronavirus impact.
The central bank move came as it looks to tackle surging household debt
sharp rises in house property prices. The won jumped against the dollar after
the announcement.
Traders are also keeping a keen eye on China after it rattled world
markets in recent weeks with a wave of regulations aimed at winding in
private firms — particularly in the tech sector — it considered to have
become too powerful and posed security risks.
While there has been little noise out of Beijing lately, the state-backed
People’s Daily reported that Xi Jinping had said China should try to achieve
key economic and social development objectives this year.
While it did not set out specifics, the president has embarked on a
mission to rein in the country’s tycoons and powerful organisations, instead
focusing on “common prosperity”.
(BSS)
