Asian shares slip on Fed officials’ hawkish policy stance

An electronic price board is displayed inside a conference hall in Tokyo, Japan on November 1, 2021. REUTERS/Issei Kato

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  • Ex-MSCI Asia drops to Japan after Fed officials throw hawkish tones
  • Bank of Korea raises benchmark interest rate by 25 basis points to 1.25%
  • Buying the yen in the mood for risk aversion, gold companies

TOKYO (Reuters) – Asian stocks took a hit on Friday after a fresh wave of hawkish comments from Federal Reserve officials reinforced expectations that US interest rates could rise as soon as March, leaving markets bracing for tighter monetary conditions.

Federal Reserve Governor Lyle Brainard became the latest and greatest US central bank governor on Thursday to indicate that interest rates will rise in March to combat inflation. Read more

Stock markets turned sharply red, with the broadest MSCI Asia Pacific Index outside Japan (.MIAPJ0000PUS) down 0.9% in the mid-afternoon, while Australia (.AXJO) lost 1.1% and Japan’s Nikkei (.N225) fell 0.9% ) by 1.3%.

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South Korean shares (.KS11) fell 1.4% after the country’s central bank raised its benchmark interest rate by 25 basis points to 1.25% on Friday, as expected, and returned it to its pre-pandemic level as it seeks to curb rising consumer prices. Read more

China’s blue-chip stock index (.CSI300) fell 0.5% and Hong Kong’s Hang Seng (.HIS) fell 0.9%.

“Everyone is really nervous right now. Because everything is likely to come under pressure from aggressive Fed policy,” said Kyle Rhoda, market analyst at IG in Melbourne.

“There is hope that this will be a slow and painless rendition of normal politics,” he added. “But that’s not necessarily guaranteed with the Fed taking inflation seriously.”

Federal Reserve Governor Christopher Waller, who has repeatedly called for a more aggressive response to high inflation, said later Thursday that a series of four or five US interest rate increases could be justified if inflation did not abate.

Data on Wednesday showed US inflation as measured by the Consumer Price Index rose 7.0% in December, marking the largest year-over-year increase in nearly four decades. Read more

bloated assets

In the bond market, yields on US 10-year Treasuries came in at 1.720%, well flat at two-year highs on Monday, indicating investors’ preference for the security of government debt over volatile technology and growth stocks.

A Reuters report said that policy makers at the Bank of Japan are discussing when they can eventually begin to raise interest rates, which helped lift the yields of the yen and Japanese government bonds (JGB). Read more

The five-year government bond yield was -0.015%, the highest since January 2016, when the Bank of Japan adopted negative rates.

The yen, which has traditionally attracted demand from flights to safety, was last trading at 113.70 after hitting its strongest level against the dollar in 3-1/2 weeks.

Separate data showed that wholesale inflation in Japan rose 8.5% year-on-year in December, accelerating the second-fastest pace on record, in a sign that rising raw material and fuel costs are weighing on companies’ margins. Read more

IG’s Rhoda said markets face a more persistent risk of increased demand for safe havens, especially around major events involving US central bank policy and US data.

“This is a problem because it can be said that every asset has been inflated due to loose monetary policy,” he added.

“Each asset will have to correct to reflect a higher or tighter monetary policy.”

The dollar index fell 0.1 percent to 94.638, after hitting a two-month low, driven by the strength of the euro, which hit a new two-month high of $1.1482.

In the commodity markets, gold was 0.3% firmer at $1,827 an ounce but still below its January high of $1,831.

Oil futures remained weak on expectations that Washington may move soon to cool prices still above $80 a barrel, while restrictions on movement in China to curb the COVID-19 outbreak weighed on fuel demand.

Brent crude was almost flat at $84.49 a barrel, while US crude lost 18 cents to $81.95.

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Editing by Shree Navaratnam and Kim Koogill

Our Standards: Thomson Reuters Trust Principles.


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