Asian equity markets fell Thursday after minutes from the Federal Reserve’s latest policy meeting indicated it is preparing to aggressively wind back its monetary policy, while oil prices pared another big drop.
The eagerly awaited summary dealt another blow to traders, who have grown increasingly concerned that officials will not be able to rein in 40-year-high inflation while also preventing the world’s top economy from tipping into recession.
According to the minutes, several policymakers were in favour of lifting interest rates half a percentage point while they also talked about offloading their bond holdings at a rate of $95 million per month — a process known as quantitative tightening.
The Fed’s balance sheet runs to about $9 trillion.
News that such measures were being considered comes after several members of the policy board made hawkish comments about lifting rates. The next meeting takes place May 3-4.
The prospect of borrowing costs rising at a quicker pace and to a higher level over the coming months has added to a wave of uncertainty across trading floors caused by the war in Ukraine.
And while data at the moment points to a healthy economy, commentators warn of possible hard times ahead.
“This job of orchestrating a soft landing (for the economy) is going to be difficult,” Tracie McMillion, at Wells Fargo Investment Institute, told Bloomberg Television.
“We’ve only seen quantitative tightening once before and it was to a lesser degree than it will be this time, and it ended shortly after it started.”
Wall Street tumbled for the second day in a row, with the Nasdaq again losing more than two percent, as tech firms are more susceptible to higher rates.
“The minutes… show that Fed officials are becoming increasingly alarmed at how inflationary pressures are increasing and are determined to send a message to markets that they will act decisively to keep it in check,” said CMC markets analyst Michael Hewson.
Investors are now awaiting the release of minutes from the European Central Bank’s most recent meeting, looking for signs that officials there are preparing to change from their more dovish approach to policy.
Asia broadly followed New York down, with Tokyo, Sydney, Seoul, Taipei, Singapore, Mumbai, Wellington, Bangkok and Manila all in the red.
Hong Kong and Shanghai were also sharply lower, having given up early gains fuelled by hopes that China will ease monetary policy as its giant economy struggles under the weight of lockdowns in various parts of the country.
Authorities will step in to use tools at an “appropriate time”, according to the readout of a State Council meeting chaired by Premier Li Keqiang, adding they would also look at other ways to increase consumption.
London fell in the morning but Paris and Frankfurt rose.
On oil markets, both main contracts enjoyed gains a day after tanking more than five percent on concerns about demand caused by a possible economic slowdown.
The commodity had also been hit by an announcement from the International Energy Agency that it will release tens of millions of barrels to offset those lost through sanctions on Russia, and owing to China’s Covid lockdowns.
“With the IEA release and the US (reserves) releases now priced in, Asia has walked in and bought the dips in both contracts,” said OANDA’s Jeffrey Halley.
“That is consistent with the usual behaviour of buyers from the energy-hungry region, with plenty of Asian interest to buy on any and all pullbacks.”
– Key figures around 0810 GMT –
Tokyo – Nikkei 225: DOWN 1.7 percent at 26,888.57 (close)
Hong Kong – Hang Seng Index: DOWN 1.2 percent at 21,808.98 (close)
Shanghai – Composite: DOWN 1.4 percent at 3,236.70 (close)
London – FTSE 100: DOWN 0.3 percent at 7,562.36
Brent North Sea crude: UP 0.4 percent at $101.44 per barrel
West Texas Intermediate: UP 0.4 percent at $96.62 per barrel
Euro/dollar: UP at $1.0900 from $1.0900 late Wednesday
Pound/dollar: UP at $1.3087 from $1.3071
Euro/pound: UP at 83.67 pence from 83.38 pence
Dollar/yen: DOWN at 123.72 yen from 123.79 yen
New York – Dow: DOWN 0.4 percent at 34,496.51 (close)
