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Asia traders move cautiously as they turn focus on Fed

Businesswoman looking at stock exchange market display screen board in downtown financial district.


Businesswoman looking at stock exchange market display screen board in downtown financial district.

  • Asian investors drifted Wednesday after a two-day advance with focus on the Federal Reserve’s crucial policy meeting.
  • US benchmark 10-year Treasury yields have risen to a one-year high in recent weeks.
  • After a tepid lead from Wall Street, Asia struggled, with Tokyo, Hong Kong and Shanghai barely moved, while Sydney, Seoul, Mumbai, Taipei, Jakarta, Bangkok and Wellington all fell.

Asian investors drifted Wednesday after a two-day advance with focus on the Federal Reserve’s crucial policy meeting, which comes against a backdrop of heightened inflation fears fuelled by an expected surge in economic activity this year.

While the battle against coronavirus continues to rage and some countries reimpose containment measures, the rollout of vaccines, signs of slowing infections and huge government and central bank largesse are providing massive support to equities.

But that has also raised concerns about soaring prices and the prospect the Fed will have to wind back the loose monetary policies – including record low interest rates – that have powered a year-long rally.

US benchmark 10-year Treasury yields – a guide to future interest rates – have risen to a one-year high in recent weeks.

Highlighting the importance of the issue to markets, a survey by Bank of America Merrill Lynch found that the virus as not traders’ main concern now.

“That honour goes to higher-than-expected inflation, with a bond market tantrum at number two,” said Axi strategist Stephen Innes. “So indeed, inflation tops the markets new ‘Wall of Worry’.”

With that in mind, the end of the Fed’s two-day policy meeting later in the day and boss Jerome Powell’s comments have taken on increasing significance.

“The Fed will be loath to send any hawkish signal,” Innes added. “Still, the board faces a tricky balancing act as incorporating the US stimulus into their forecast will lower unemployment and push inflation over two percent in 2023.”

He added that this could mean a rate hike in two years.

After a tepid lead from Wall Street, Asia struggled, with Tokyo, Hong Kong and Shanghai barely moved, while Sydney, Seoul, Mumbai, Taipei, Jakarta, Bangkok and Wellington all fell. Singapore and Manila edged up.

“Most asset classes (are) contenting themselves to march on the spot ahead of the… meeting,” said OANDA’s Jeffrey Halley.

And Tapas Strickland, at National Australia Bank, added: “There is the potential for large moves in either direction with Powell needing to walk a fine line of acknowledging the improvement (in the US economy), but also that the Fed isn’t intending on changing its policy guidance.”


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