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Most Asian markets sank on Thursday, fuelling fears of fresh volatility after Federal Reserve minutes fanned expectations US interest rates would rise further.
The much-anticipated notes from the Fed’s January policy meeting showed the board thought Donald Trump’s sweeping tax cuts would fire up the already humming economy, pushing inflation higher.
Analysts speculate that the Fed will lift interest rates at its next meeting in March but there is debate about whether it will carry out three increases – as many have predicted – or four, in light of the recent spate of strong data.
Wednesday’s news saw the key 10-year US Treasury yield hit a four-year high and boosted the dollar but sent US equities into reverse with all three main indexes ending in negative territory.
Investors have been on edge since the start of this month when global markets were sent spinning by a strong US jobs and wages report that fuelled talk of tighter borrowing costs.
Equities around the world have surged to record and all-time highs thanks to a years-long rally built on cheap credit from crisis-era stimulus. But with economies globally improving, central banks are beginning to wind those policies in.
Tokyo ended the morning 1.2 percent lower, Hong Kong fell 1.4 percent, Sydney gave up 0.2 percent and Singapore was off 0.9 percent. Seoul shed 0.6 percent, Taipei was off 0.7 percent and Manila dropped 0.9 percent.
However, Shanghai jumped 1.4 percent as mainland traders returned from a week-long break for the Lunar New Year celebrations.
‘The market is pricing in the possibility of a tighter Fed over time,’ Evan Brown, director at UBS Asset Management and former New York Fed employee, told Bloomberg TV.
However, he added that ‘you’re going to see volatility, you’re going to see equities get a little skittish when yields are rising, but as you look over the long term, fundamentals on the economy are very strong’.
With rates expected to rise, the dollar rallied against its main peers on Wednesday and extended gains against the pound and euro in Asia. However, the yen rebounded and pushed higher as traders flocked to the Japanese unit, which is considered a safe-haven asset in times of volatility and uncertainty.
Key figures around 0230 GMT
Tokyo – Nikkei 225: 1.2 percent at 21,712.20 (break)
Hong Kong – Hang Seng: DOWN 1.4 percent at 30,988.63
Shanghai – Composite: UP 1.4 percent at 3,244.11
Euro/dollar: DOWN at $1.2274 from $1.2286 at 2140 GMT
Pound/dollar: DOWN at $1.3906 from $1.3919
Dollar/yen: UP at 107.48 yen from 107.74 yen
Oil – West Texas Intermediate: DOWN 55 cents at $61.13 per barrel
Oil – Brent North Sea: DOWN 48 cents at $64.94 per barrel
New York – DOW: DOWN: 0.7 percent at 24,797.78 (close)
London – FTSE 100: UP 0.5 percent at 7,281.57 (close)