Asian markets skid on jitters over future Fed action
21 June, 2021
Asian markets skidded on Monday, with Japan's Nikkei 225 index down 3.4%, after a sell-off Friday on Wall Street gave the S&P 500 its worst weekly loss since February.
Investors are still recalibrating their moves following the Federal Reserve’s signal the other day that it could raise current ultra-low rates sooner than had been expected. That gave the Dow Jones Industrial Average its worst weekly loss since last October.
The main Fed’s mission is to keep prices in order. The fear is that burgeoning inflation may prompt central banks to dial back the lavish support that has lifted markets to new highs after they plunged at the onset of the coronavirus pandemic last year.
Until its latest policy meeting, last week, the Fed had indicated it viewed recent price hikes as transient and would allow recovering economy run hot. Now it's forecasting raising interest rates twice in 2023.
“The shift to a youthful timeline for an interest rate hike, accompanied with an upward revision in core inflation forecast to 3%, appears to suggest that the Fed may be concerned about inflationary pressures somewhat as opposed to its previous stance of letting inflation run wild," Yeap Jun Rong of IG said in a commentary.
South Korea reported its exports rose nearly 30% in the first 20 days of June in the most recent indication that the region's recovery is steaming ahead despite lingering outbreaks of infections in lots of places.
The Nikkei gave up 983 points to 27,980.87 and the Kospi in Seoul lost 1.3% to 3,227.92. Hong Kong's Hang Seng index also lost 1.3%, to 28,427.13. Australia's S&P/ASX 200 declined 1.7% to 7,243.50 and the Shanghai Composite index declined 0.3%, to 3,514.61.
On Friday, the S&P 500 fell 1.3% to 4,166.45 in a wide retreat, as the Dow Jones Industrial Average lost 1.6%, to 33,290.08. The Nasdaq composite fell 0.9% to 14,030.38.
The Fed also has begun discusses slowing its $120 billion of monthly bond purchases, which are assisting to keep mortgages and other longer-term borrowing cheap. However the Fed’s chair has said such a tapering continues to be likely a ways away.
Markets were spooked after St. Louis Federal Reserve President James Bullard said Friday on CNBC that his personal prediction was that the high quality increase may come as soon as next year.
It’s an acknowledgment a rebounding economy with near-record charges for homes and stocks might not exactly need super low rates much longer. A recently available burst of inflation can also be upping the pressure. But any pullback in Fed support will be a big change for markets, which have been feasting on ultra-low rates for more than a year.
The Dow industrials lost 3.5% the other day. The Nasdaq composite, which includes more high-growth tech stocks, dipped a more modest 0.3%.
Still, the major U.S. stock indexes remain relatively near their record highs, as the economy continues to leap out of your recession caused by the pandemic. The S&P 500 is merely about 2% below its all-time high set on Monday, and the Dow is within 5% of its record set last month.
A way of measuring nervousness in the currency markets, referred to as the VIX, rose Friday but is merely back to where it had been in regards to a month ago.
The 10-year Treasury yield eased to 1 1.40% on Monday from 1.43% late Friday.
In other trading, U.S. benchmark crude oil rose 45 cents to $72.09 per barrel in electronic trading on the New York Mercantile Exchange. It gained 60 cents to $71.64 on Friday. Brent crude, the international standard, found 35 cents to $73.86 per barrel.
The U.S. dollar was at 109.83 Japanese yen, down from 110.27 on Friday. The euro was unchanged at $1.1861.
Source: japantoday.com
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