Growing fears about the Federal
Reserve’s plans to fight surging inflation by ramping up interest rates hit
Asian markets again Wednesday, following hefty sell-off on Wall Street, while
oil prices extended their rally after a blast at a key pipeline.
A rise in prices since early 2021 has forced central banks around the
world to start winding back the colossal financial support put in place at
the start of the pandemic, with many warning that failure to act could see
them run out of control.
Finance chiefs in several countries have already put the wheels in motion,
but the main focus is on the Fed — the central bank of the world’s biggest
economy — which has so far refrained from lifting rates, until now.
Officials are currently reining in their massive bond-buying programme and
aim to hike borrowing costs in March.
But while boss Jerome Powell has said the policy board will be careful in
its approach and mindful not to jeopardise the economic recovery, there is a
worry it will have to be more aggressive than initially thought to bring
inflation down from four-decade highs.
Some commentators are predicting a 50 basis-point rise in March, having
initially estimated 25.
Expectations for a quick run-up in costs has sent Treasury yields
rocketing and caused near-panic on equity markets, with all three main
indexes on Wall Street deep in the red so far this year, having hit multiple
records in 2021.
And the losses continued in most of Asia on Wednesday.
Tokyo shed 1.8 percent, compounded by steep falls in market heavyweights
Sony and Toyota. Sony was hurt by news that rival Microsoft would pay $69
billion for US gaming giant Activision Blizzard, betting big on the prospects
of the video game market. Toyota’s sell-off came after warning it expects to
miss its production target for this fiscal year.
Sydney, Seoul, Singapore, Wellington, Taipei, Manila and Jakarta were also
in retreat.
“Generally, we do expect to see that the bond market is going to drive
volatility, more broadly based, across the equity markets and other markets
as well,” Winnie Cisar, at CreditSights, told Bloomberg Television.
However, Hong Kong and Shanghai rose, supported by remarks from the
Chinese central bank hinting it would unveil fresh economy-supporting
measures, having cut interest rates on Monday for the first time since the
start of the pandemic.
While markets are suffering heavy volatility owing, there remains a broad
belief that the global recovery is still on track as economies reopen and
fears over the less-severe Omicron Covid variant recede.
And a major sign of that is oil, which rallied again Wednesday a day after
both contracts hit more than seven-year highs on the back of demand optimism.
The surge was given extra impetus by news of an explosion at a key
pipeline running from Iraq to Turkey, which removed a key source of supply
that transports more than 450,000 barrels a day, according to Bloomberg News.
That came a day after Yemen’s Huthi rebels in Abu Dhabi claimed an attack
that triggered a fuel tank blast killing three people and warned civilians
and foreign firms in the oil-rich United Arab Emirates to avoid “vital
installations”.
“It’s a perfect storm,” Vandana Hari, of Vanda Insights, said.
“A bunch of supply disruptions, lingering OPEC+ production shortfalls and
heightened geopolitical tensions. Plus there’s low inventory levels combining
with robust demand.”
Source: Bangladesh Sangbad Sangstha (BSS)