Asia: Markets tumble after Federal Reserve chief’s comments

ASIAN markets fell sharply at the open on Friday, trailing losses on Wall Street after the US Federal Reserve boss said an interest-rate hike was likely forthcoming. Hong Kong and Tokyo both opened deep in the red even as inflation data from Japan was in line with market expectations and better than elsewhere in the world. A falling yen, due mainly to the interest rate gap between Japan and the United States, had boosted trade on the Nikkei 225 all of this week. But the prospect of rate hikes in the United States and ongoing pandemic disruptions in China, where millions are still under a harsh Covid-19 precipitated lockdown, weighed on Asian bourses. Shanghai, Seoul, Sydney, and Taipei were all down. Fed Chair Jerome Powell’s comments reversed fortunes on Wall Street mid-session. Equities had opened higher following good results from Tesla and upbeat comments from leading airlines as well as solid gains in Paris and Frankfurt. But US stocks tumbled after Powell, who has signalled the US central bank will have to move more aggressively to counter record US inflation, explicitly said a half-point interest rate increase is “on the table” for next month’s policy meeting. “Red flags are going up today,” said Stephen Innes at SPI Asset Management. “While one day certainly does not make a trend, when the market decides to focus on a super hawkish inflation-fighting Fed narrative stoking recession fears, it typically triggers significant shifts in investor behaviours and conversations, and markets then turn a lot more caution.”

Major US indices all finished down more than 1 per cent, while the dollar pushed higher against the euro and other currencies. Oil prices also took a hit over the Fed’s potential monetary policy tightening and dwindling energy demand in China. Supply concerns linked to the war in Ukraine and protest-related disruptions in Libya were also impacting crude. “Russian Production decreased, pointing to self and official sanctions starting to bite oil prices bullishly,” Innes said.