HONG KONG: Fears about surging inflation continued to trouble Asian markets Wednesday, with investors nervously awaiting crucial US price data later in the day that could ramp up expectations the Federal Reserve will have to taper its monetary policy earlier than flagged.
Global equities have had a torrid start to the week as traders bet that stimulus measures, the rollout of vaccines and the reopening of businesses will fan a blockbuster recovery in the world economy but bring with it an explosion of spending that will push costs through the roof.
And with a range of commodities including copper, iron ore and lumber all surging to records or multi-year highs, those concerns are increasing while observers said rising demand for employees is also pushing up wage costs, adding upward pressure to prices.
“It’s not going to be that easy to pull eight million people off their sofas and back to work without the price of doing that having to be higher than it was before,” said Mark Holman, chief executive officer at TwentyFour Asset Management. “This is inflation risk.”
The unease on trading floors comes despite repeated Fed insistence that while it sees inflation spiking owing to the recovery and the low base of comparison last year, officials will not make any policy adjustments such as winding in their bond-buying or lift interest rates yet. The bank’s position is that it will not move until it is happy unemployment is under control and inflation is running hot for an extended period.
Tech firms — which boomed last year as people were forced to stay home — have been at the forefront of the sell-off as they are considered susceptible to higher borrowing costs owing to the potential effect on their future earnings and cash flow. A big miss on US jobs creation on Friday had eased inflation worries but they soon returned this week and Wall Street has plunged for two days, while observers warn an above-forecast reading on the consumer price index Wednesday could spark another sharp sell-off.
“It’s all about inflation expectations,” Priya Misra, of TD Securities, said on Bloomberg TV. She said if the CPI report signals “inflation is likely to be higher for a while, I think the taper discussion will come back into the forefront and then we can get a bigger interest rate move”. Asian markets were broadly down for a second day. Tokyo extended Tuesday’s more than three percent plunge, while Taipei’s tech-rich bourse tumbled more than two percent. There were also losses in Sydney, Seoul, Singapore, Wellington and Manila, though Hong Kong and Shanghai posted mild gains on bargain-buying.