Most markets plunged yesterday in Asia and Europe after another painful sell-off on Wall Street, with investors focused on the Federal Reserve’s upcoming monetary policy meeting this week, where officials are expected to unveil their plans to combat runaway inflation.
Tech firms, soaring in the wake of the pandemic, led the retreat in New York after weak Netflix subscriber numbers sparked concerns that ending lockdowns and reopening economies is causing consumers to switch. your spending habits.
This comes as traders contemplate an end to the ultra-loose monetary policies put in place by central banks in early 2020 to cushion the impact of Covid-19 containment measures, and the Fed is expected to start raising interest rates. from March.
Minutes from the Fed’s December meeting indicated that officials were becoming more aggressive as they grew increasingly concerned about inflation, which is at its highest point in four decades.
Commentators pointed to the first rise in borrowing costs in March, followed by three more rises before the end of the year, while the central bank is also forecast to start reducing its vast bond holdings that have helped keep interest rates low. rates.
Goldman Sachs economists said over the weekend that they saw gains in March, June, September and December, with July the start of the Fed’s balance sheet reduction, but warned that inflationary pressures mean “risks are tipped a bit higher.” little up from our baseline. They were also concerned that the virus would continue to cause supply-demand imbalances, while strong wage growth was also a concern, suggesting that inflation would remain an ongoing issue.
“We see a risk that (the policy board) wants to take tightening action at every meeting until the landscape changes,” the economists said. “This raises the possibility of an increase or early announcement of the balance sheet in May, and of more than four increases this year.”
The prospect of tighter policy has hit markets in recent weeks, with the Nasdaq in New York down about 15% from its recent high: tech companies seen as more susceptible to higher rates.
The S&P 500 is down more than 8% from an all-time high hit earlier in the month, and observers said it could post even more losses in the coming weeks.
The sell-off filtered through Asia, with Mumbai down 2.2% as it extended losses to a fifth day, while Hong Kong, Seoul, Jakarta and Wellington each fell more than 1%.
There were also losses in Sydney, Singapore, Manila and Bangkok, but Tokyo, Shanghai and Taipei squeezed gains.
London, Paris and Frankfurt opened lower.
“The change in tone from central banks would seem to suggest that they have belatedly started to worry more about how recent price increases could take hold than was thought just a few weeks ago,” said Michael Hewson, an analyst at CMC Markets. .
“It’s not hard to see why when you look at inflation levels that are now at levels last seen in the 1980s and 1990s.”
He added that geopolitical concerns around Russia’s military buildup on the border with Ukraine were also weighing on traders’ minds.
Still, oil prices rose on optimism demand will improve as countries reopen and the Omicron variant shows signs it may be peaking, allowing people to travel more freely and give a boost to consumption.
“Physical market demand is strong, as is optimism about Covid becoming endemic,” said Vandana Hari of Vanda Insights.
“The oil narrative remains bullish, pointing to continued strength in prices punctuated by minor pullbacks.”
In Tokyo, the Nikkei 225 closed 0.2% higher at 27,588.37 points; The Hong Kong Hang Seng Index ended down 1.2% at 24,656.46 points and the Shanghai Composite ended unchanged at 3,524.11 points yesterday.
George is Digismak’s reported cum editor with 13 years of experience in Journalism