Most Asian markets rose Monday, with Tokyo leading the way as a win for Japan’s ruling party in a weekend general election fuelled hopes it will push ahead with a fresh stimulus, though Hong Kong was hit by data showing further weakness in China’s economy.
News that inflation had hit a 30-year high in the United States and a 13-year peak in the eurozone added to long-running concerns that price rises are in danger of running out of control, while piling more pressure on central banks to tighten monetary policy.
The spotlight is now on the Federal Reserve’s meeting this week, where it is expected to unveil a timetable for tapering its vast bond-buying programme, while boss Jerome Powell’s statement afterwards will be followed for an idea about when it will start hiking interest rates.
“Given (the beginning of tapering) is well expected, more interest is likely to be in Chair Powell’s press conference and whether this hints the Fed is becoming less comfortable with the inflation picture and whether they are starting to see the case for multiple hikes in 2022 as the market is pricing,” said National Australia Bank’s Rodrigo Catril.
Expectations for higher US rates have rallied the dollar and put it on course for 115 yen for the first time since early 2017.
The decision comes as the Bank of England is tipped to lift rates this week, following in the footsteps of other financial authorities in South Korea, New Zealand and Singapore, among others.
While investors are coming to terms with the prospect of rising borrowing costs, markets continue to press higher, with all three main indexes on Wall Street ending at records on Friday, thanks to a largely healthy earnings season.
Tokyo took up the mantle in Asia on Monday, rallying more than two percent after Prime Minister Fumio Kishida won a strong majority in the weekend poll, giving him the freedom to push through a big-spending spending programme to kick-start the stuttering economy.
He has previously said he would pursue a programme worth tens of trillions of yen.
The win for Kishida also provided some optimism for stability.
There were also gains in Sydney, Seoul, Singapore, Taipei and Mumbai. Wellington, Bangkok and Jakarta dipped.
Hong Kong and Shanghai also fell after China released data Sunday showing factory activity contracted more than expected in October owing to a supply crunch, rising input costs and new lockdowns to fight another Covid outbreak.
The reading will add further pressure on the government to provide more support for the world’s number two economy, but authorities have to tread a fine line as they battle to contain inflation.
“The jump of (the) output price index in October is alarming,” Zhang Zhiwei, at Pinpoint Asset Management, said. “This could lead to higher pressure on (consumer) inflation, and limit the space of monetary policy easing.”
There was a little relief from privately compiled data released by Caixin that showed a slight improvement in the manufacturing sector thanks to improving domestic demand.
Still, while investor sentiment has waned over the past year, observers remain upbeat.
“Having been bullish on equities it feels right to turn a touch more cautious this week,” Chris Weston, at Pepperstone Financial, wrote in a note. “Although, the fact that equities have held up so well considering the rapid repricing of interest rates is certainly a positive.”
– Key figures around 0710 GMT –
Tokyo – Nikkei 225: UP 2.6 percent at 29,647.08 (close)
Hong Kong – Hang Seng Index: DOWN 1.0 percent at 25,117.87
Shanghai – Composite: DOWN 0.1 percent at 3,544.48 (close)
Dollar/yen: UP at 114.34 from 114.03 yen at 2030 GMT Friday
Pound/dollar: DOWN at $1.3666 from $1.3685
Euro/dollar: DOWN at $1.1554 from $1.1556
Euro/pound: UP at 84.55 pence from 84.44 pence
West Texas Intermediate: DOWN 0.6 percent at $83.08 per barrel
Brent North Sea crude: DOWN 0.4 percent at $83.39 per barrel
New York – Dow: UP 0.3 percent at 35,819.56 (close)
London – FTSE 100: DOWN 0.2 percent at 7,237.57 (close)
— Bloomberg News contributed to this story —