Asian markets were mostly down on Friday, reversing part of the previous day’s rally as traders come to terms with the likelihood that central banks will hike interest rates further to combat runaway inflation.
Stocks rose across the region on Thursday after the closely-watched US CPI fell more-than-expected in July, fueling hopes that the Federal Reserve may be slowing its pace of monetary tightening.
A similarly upbeat PPI report, which can be used as a guide to future CPI readings, added further grounds for optimism.
However, feel-good sentiment in US trading faded after Fed officials lined up to warn that there is still a long way to go to tame inflation, which is still at four-decade highs.
San Francisco Fed Chair Mary Daly was the latest to bring markets down to earth, telling Bloomberg TV that the data is “significant in that it says we’re seeing some improvement, but they are not a victory”.
She added that she would likely support a half-point hike at next month’s meeting, but is open to a third three-quarter-point hike in a row if the data showed it was needed.
Daly also dampened hopes that the bank could start cutting borrowing costs next year if rates were cut, saying they would be held for a time before any cuts were made.
“I don’t see that bumpy part where we raise interest rates to really high rates and then lower them,” she said.
“I’m thinking of raising it to a level that we know is appropriate and then holding it there for a while so we keep lowering inflation until we’re really done.”
Her comments follow similar warnings from two colleagues on Wednesday.
The US 10-year Treasury yield rose on Thursday, reflecting expectations that the Fed will continue its sharp rate hikes.
After a good start, Wall Street ended broadly negative, with the Nasdaq leading losses.
And Asia also struggled to maintain momentum, with Hong Kong, Shanghai, Sydney, Seoul, Singapore, Manila, Jakarta and Wellington all slightly lower.
Tokyo, however, rose more than 2 percent and investors there came back from a one-day pause to catch up on Thursday’s rebound. Taipei also rose.
UBS Financial Services’ Terri Jacobsen expected traders to face volatility for some time to come.
“There will be headwinds for markets until we have a resolution on how far the Fed will go and how long it will hike interest rates,” he said.
There was also concern that because the decline in the CPI and PPI was helped by a slump in oil prices, they could easily rebound if crude oil markets recover.
With the war in Ukraine showing no signs of ending anytime soon and the US economy appearing resilient to rising interest rates, there was a good chance Crude Oil could surge from its current six-month lows.
“The risk of higher oil prices towards the end of the year is heightened, so this moderation in inflationary pressures may not last,” said OANDA’s Edward Moya.
“The economy is in too good shape for further crude oil demand destruction and that should support oil prices well above the $90 mark.”
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: up 2.4 percent at 28,479.99 (breakthrough)
Hong Kong – Hang Seng Index: down 0.1 percent at 20,069.52
Shanghai — Composite: down 0.1 percent at 3,277.34
Euro/Dollar: DOWN at $1.0308 from $1.0326 on Thursday
Pound/dollar: DOWN at $1.2182 from $1.2196
Euro/Pound: DOWN at 84.61p from 84.65p
Dollar/yen: up at 133.38 yen from 133.05 yen
West Texas Intermediate: FALSE, up 0.7 percent at $93.68 a barrel
North Sea Brent Crude: FALSE, up 0.7 percent at $98.94 a barrel
New York – Dow: up 0.1 percent at 33,336.67 (close)
London – FTSE 100: down 0.6 percent at 7,465.91 (close)
#Asian #markets #struggling #traders #rate #hikes
