Asian equities were mixed Wednesday with investors nervously awaiting a Federal Reserve interest rate decision that has taken on greater significance since a forecast-busting inflation report sent shockwaves through world markets.
Trading floors saw a sea of red at the start of the week after data showed US consumer prices soared at their fastest pace in four decades last month, confounding hopes they were stabilising and putting pressure on officials to act.
The news ramped up bets that the central bank would hike interest rates at a steeper and faster pace than expected as it struggles to retain credibility.
Before Friday’s data, the Fed had been tipped to lift borrowing costs by half a point when its policy meeting ends Wednesday but investors are now widely anticipating a three-quarter point increase, with some even suggesting one percentage point.
The moves fuelled worries that the tighter monetary conditions will deal a blow to the US economy and potentially send it into recession next year.
Still, many observers say acting now is the only option available to policymakers if they want to rein in prices and prevent stagflation.
“The sooner they are going to be clear about how quickly they are going to raise rates and what is an acceptable rate of inflation for them, the sooner markets will calm down,” Wincrest Capital’s Barbara Ann Bernard told Bloomberg Television.
And StoneX Financial’s Matt Simpson added: “A bullish outcome for risk-appetite is the well-telegraphed 75-basis-point hike, conviction from the Fed that they’ll manage a soft landing, alongside a downwardly revised CPI forecast for good measure”.
But he warned that a half-point increase “could inadvertently weigh on sentiment as markets are concerned the Fed aren’t taking inflation seriously enough”.
While most of Wall Street and Europe ended down, they saw less turbulent action than Friday and Monday.
Asia was mixed, with some markets enjoying a bargain-buying.
Hong Kong, Shanghai, Singapore, Wellington, Taipei and Jakarta were all in positive territory, while Tokyo, Sydney, Seoul and Manila slipped.
While there is a little calm ahead of the Fed announcement, commentators warn that uncertainty will continue to course through trading floors for some time.
Strategist Louis Navellier said markets could go one of two ways after the meeting.
“The big unknown is will the market have a relief rally thinking that inflation is finally being seriously addressed and will therefore be tamed sooner than feared?
“Or will the move create new sellers from fears that the Fed is panicking and may hasten a recession by overshooting as it chases inflation?
“Either way, rates will be rising in an attempt to slow demand in order to slow inflation and further volatility is almost guaranteed.”
In company news, the management agency of K-pop supergroup BTS plunged by a quarter in Seoul after the band announced they were taking an indefinite break.
The seven members, who have generated billions of dollars for South Korea’s economy, made the shock announcement on Tuesday.
On Wednesday morning the band’s label HYBE collapsed about 27 percent, wiping $1.6 billion off its market valuation.
– Key figures at around 0230 GMT –
Tokyo – Nikkei 225: DOWN 0.7 percent at 26,435.01 (break)
Hong Kong – Hang Seng Index: UP 1.0 percent at 21,281.78
Shanghai – Composite: UP 1.0 percent at 3,320.70
Euro/dollar: UP at $1.0445 from $1.0420 late Tuesday
Pound/dollar: UP at $1.2040 from $1.1993
Dollar/yen: DOWN at 135.17 yen from 135.33 yen
Euro/pound: DOWN at 86.77 pence from 86.84 pence
Brent North Sea crude: UP 0.3 percent at $121.47 per barrel
West Texas Intermediate: UP 0.3 percent at $119.24 per barrel
New York – Dow: DOWN 0.5 percent at 30,364.83 (close)
London – FTSE 100: DOWN 0.3 percent at 7,187.46 (close)
