Markets fell in Asia on Thursday following a painful sell-off in New York fuelled by bets that the Federal Reserve will embark on an aggressive campaign to fight soaring inflation by hiking interest rates several times.
The much-anticipated release of minutes from the US central bank’s December policy meeting showed that while officials were concerned about the fast-spreading Omicron coronavirus variant, they were confident the world’s top economy was in rude health and able to absorb high borrowing costs.
The Federal Open Market Committee has already started winding back the vast bond-buying stimulus put in place at the start of the pandemic as price rises remain stubbornly high, with the programme due to end in March.
Traders had widely expected the bank to then start lifting rates.
Policymakers had said they would not remove their support until it was happy it had unemployment tamed and inflation was running persistently hot. Both appear to have been achieved or close to it.
Now officials are ready to act, with the Fed minutes saying: “It may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated”.
The move away from massive central bank support around the world, particularly from the Fed, has rattled markets in recent months — having notched up a series of records or multi-year highs on the cheap cash.
With the punch bowl being taken away, traders are in retreat, particularly those invested in tech firms, which are more susceptible to higher borrowing costs.
On Wall Street, the Nasdaq plunged more than three percent, while the Dow and S&P 500, which both started the week with new records, lost more than one percent.
And Asia tracked the selling.
Tokyo led losses, falling more than two percent, while Sydney was off more than one percent. Hong Kong, Shanghai, Seoul, Wellington, Taipei, Manila and Jakarta were also well down.
“We are prepping people for volatility,” Carol Schleif, of BMO Family Office, told Bloomberg Television.
“You had another record double-digit year and yet investors’ mood is pretty dour. We definitely think the readjustment of the volatility will increase this year because there is a lot to be dealt with.
“You do have a levelling off of some things, improvement in some things and people are going to be watching both the Fed and company earnings.”
The prospect of higher rates also weighed on other assets.
Oil shed more than one percent, with concerns about virus lockdowns in China weighing on demand optimism.
Bitcoin dropped to $42,506 at one point, its lowest level since a flash crash at the start of December, and well down from the record near $69,000 seen in November.
– Key figures around 0230 GMT –
Tokyo – Nikkei 225: DOWN 2.1 percent at 28,721.49 (break)
Hong Kong – Hang Seng Index: DOWN 0.8 percent at 22,716.37
Shanghai – Composite: DOWN 0.9 percent at 3,562.57
Dollar/yen: DOWN at 115.89 yen from 116.06 yen late Wednesday
Pound/dollar: DOWN at $1.3545 from $1.3557
Euro/dollar: DOWN at $1.1313 from $1.1317
Euro/pound: UP at 83.52 pence from 83.41
West Texas Intermediate: DOWN 1.0 percent at $77.07 per barrel
Brent North Sea crude: DOWN 1.2 percent at $79.81 per barrel
New York – DOW: DOWN 1.1 percent at 36,407.11 (close)
London – FTSE 100: UP 0.2 percent at 7,516.87 (close)
