Markets were mixed Thursday, with little buying enthusiasm after minutes from a Federal Reserve policy meeting indicated interest rates will likely keep rising longer than previously feared.
A blockbuster jobs report and sticky inflation data this month have dealt a hammer blow to earlier expectations the central bank could soon pause its monetary tightening campaign or even cut borrowing costs before year’s end.
Several Fed officials have lined up to warn traders they were too optimistic and that with the labour market still strong, rates would need to keep rising until it had weakened and prices were under control.
Minutes from the bank’s February 1 decision reinforced that broad agreement as policymakers try to get inflation down to their target of two percent.
“Participants observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to two percent, which was likely to take some time,” the minutes said.
“Almost all participants agreed that it was appropriate to raise the target rate for the federal funds rate 25 basis points at this meeting.”
And it noted that “a few participants” were in favour of a 50-point increase.
Analysts pointed out that the minutes came before the latest jobs and inflation figures.
National Australia Bank’s Taylor Nugent, meanwhile, noted “the absence of any mention of ‘disinflation’ in the minutes, which contrasts (bank boss Jerome) Powell’s press conference where he noted many times that the disinflationary process was underway”.
After a healthy rally through January, global markets have rowed back this month as investors come to terms with the higher-for-longer narrative and recession fears return.
After Wednesday’s sell-off, Asian markets stabilised. Hong Kong, Shanghai, Sydney, Singapore and Manila all fell, though Seoul, Wellington, Taipei and Jakarta edged up.
“One of our big concerns coming into this year was the market was anticipating an event that wasn’t likely to occur, that being a dovish Fed pivot,” Oaktree Capital Management’s Danielle Poli told Bloomberg Television.
“The market has woken back up a little bit in these last two weeks.”
Investors are now awaiting the release of US jobless claims later in the day, which could provide a fresh idea about the strength of the labour market.
Crude prices edged up slightly Thursday but made only a small dent in the losses of at least three percent suffered the day before as the prospect of higher rates and a possible recession drags on demand expectations.
– Key figures around 0230 GMT –
Hong Kong – Hang Seng Index: DOWN 0.1 percent at 20,397.43
Shanghai – Composite: DOWN 0.1 percent at 3,287.05
Tokyo – Nikkei 225: Closed for a holiday
Dollar/yen: UP at 134.76 yen from 134.71 yen on Wednesday
Euro/dollar: UP at $1.0619 from $1.0609
Pound/dollar: UP at $1.2058 from $1.2046
Euro/pound: UP at 88.06 pence from 87.99 pence
West Texas Intermediate: UP 0.2 percent at $74.12 per barrel
Brent North Sea crude: UP 0.2 percent at $80.75 per barrel
New York – Dow: DOWN 0.3 percent at 33,045.09 (close)
London – FTSE 100: DOWN 0.6 percent at 7,930.63 (close)
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