Stocks in Asia teetered on Friday as investors tried to assess the Federal Reserve’s plans to raise interest rates to fight inflation, with mixed data and differing opinions from bank officials providing little clarity.
Markets’ recovery from their June lows appears to have lost momentum this week after minutes from the Fed’s last meeting showed it was determined to continue raising borrowing costs until prices were brought under control.
The gains came amid a range of issues that have left stock markets uneasy, including China-US tensions, the war in Ukraine, supply chain turmoil and extreme weather conditions across much of the northern hemisphere.
A statement from policymakers and comments from Fed Chair Jerome Powell after last month’s board meeting suggested they might consider slowing the pace of rate hikes if the economy slows.
This was followed by a fall in inflation that boosted markets, but was followed by several officials who reiterated the need to further tighten monetary policy to bring inflation down from four-decade highs.
This week’s minutes and comments from a number of Fed executives reinforced that view, with some throwing cold water on hopes of possible rate cuts in the new year.
All eyes are now on next week’s central bankers’ symposium in Jackson Hole, Wyoming, where CFOs and central bankers will pay close attention to Powell’s comments.
“We don’t see how the Fed can turn around if they haven’t really achieved anything,” said Marco Pirondini of Amundi US. “The market has to become more realistic.”
Still, Wall Street’s three main indices edged higher after Wednesday’s losses.
But Asian traders were a bit more cautious.
Tokyo, Hong Kong, Sydney, Taipei, Manila and Jakarta rose but Shanghai, Singapore, Seoul and Wellington fell.
The prospect of tighter US monetary policy for an extended period pushed the dollar back to multi-year highs against its peers.
And OANDA’s Edward Moya warned that markets would remain shaky for a while.
“Stocks will most likely struggle for direction for the remainder of the summer as Wall Street remains unsure of how aggressive the Fed will be in September,” he said in a note.
“However, traders will continue to closely monitor developments surrounding the war in Ukraine.
“Turkish President (Recep Tayyip) Erdogan remarked that he was in talks with (Ukrainian) President (Volodymyr) Zelensky about ways to end the war, welcome news for risk-takers.
However, others remained optimistic that recent gains could be sustained.
Federated Hermes’ Lewis Grant added: “We remain optimistic that the current rally will translate into a longer-term bull market, but recognize that geopolitical risks remain high and it is too early to rule out the possibility that we Witness a bear market rally.
“Investor risk appetite remains fragile.”
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: up 0.1 percent to 28,967.64 (breakthrough)
Hong Kong – Hang Seng Index: up 0.4 percent to 19,834.61
Shanghai — Composite: down 0.1 percent at 3,273.79
Euro/Dollar: DOWN at $1.0078 from $1.0095 on Thursday
Pound/dollar: DOWN at $1.1917 from $1.1937
Euro/Pound: DOWN at 84.54p from 84.56p
Dollar/yen: up at 136.16 yen from 135.88 yen
West Texas Intermediate: FALSE, up 0.2 percent at $90.34 a barrel
North Sea Brent Crude: FALSE, up 0.2 percent at $96.40 a barrel
New York – Dow: up 0.1 percent at 33,999.04 (close)
London – FTSE 100: up 0.4 percent at 7,541.85 (close)
— Bloomberg News contributed to this story —
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