AFP / Hong Kong
Asian markets mostly fell yesterday as persistent inflation fears overshadowed a forecast-busting US jobs report and Senate approval of Joe Biden’s huge stimulus package, while Brent crude broke past $70 for the first time since January last year after an attack on energy facilities in Saudi Arabia.
Traders were given a stellar lead from Wall Street, where the three main indexes surged following news that the world’s top economy created 379,000 jobs in February, reaffirming the view that it is on track for a strong recovery.
The report came just ahead of senators passing Biden’s $1.9tn rescue plan, setting it up for the president’s signature by the end of the week.
In another sign that the world economy is getting back on track, China at the weekend released data showing a better-than-expected jump in exports in January and February, suggesting global trade is revving up again after being hammered by the coronavirus pandemic.
However, the news added to fears about soaring inflation that could force the Federal Reserve and other central banks to wind back the ultra-loose monetary policies that have been a key driver of a year-long equity market rally.
“The US federal government and the Federal Reserve seemed to have learnt something from their attempts to reheat the economy after the great financial crisis,” said David Kelly at JP Morgan Asset Management.
“The economy is already surprisingly warm and, with the help of very aggressive policy, is likely to heat up quickly from here.
However, the critical question remains whether they have the skill and discipline to turn the policy temperature down to a simmer before inflation, and not just the economy, comes to a boil.”
Hong Kong ended 1.9% lower while Shanghai closed down 2.3%. Tokyo, Seoul, Wellington, Taipei and Jakarta also suffered selling pressure. However, Sydney, Singapore, Mumbai and Bangkok all rose.
London, Frankfurt and Paris were all up in early European trade.
The losses come as investors also worried that valuations may have run a little too far and were in line for a correction.
“Profit taking is not over yet, given that the yield continues rising and investors have become cautious,” Jackson Wong, at Amber Hill Capital, said.
While the outlook for the global economy is for a strong rebound from last year’s recession, there is a growing worry about soaring prices, with benchmark US 10-year Treasury bond yields continuing to rise. Yields rise as bond prices fall, and investors have been rushing out of them as inflation would eat into their returns over time, sparking the selloff in world markets.
And observers say markets are worried that the Fed is reacting too slowly, with strategist Louis Navellier saying at the weekend that traders are worried the central bank may not have enough firepower to control the surge in yields.
Fed boss Jerome Powell “keeps talking about how inflation is transitory and may not persist”, he said. “This is the real problem.
Wall Street sees higher crude oil prices and Treasury yields, while Powell is essentially in denial about inflation, which does not inspire investor confidence.”
Investors will be keeping tabs on the European Central Bank’s latest policy meeting this week, hoping officials will stress their commitment to keeping borrowing costs low, while the Fed is due to gather next week.
Crude prices, already rallying on expectations that the global recovery will fan a surge in demand, jumped more than two % Monday – having climbed around 4% on Friday – after a missile and drone attack on Saudi Arabia’s oil industry.
Brent at one point peaked at $71.38 – the highest level since January 2020 – before falling back slightly.
In Tokyo, the Nikkei 225 closed down 0.4% to 28,743.25 points; Hong Kong – Hang Seng ended down 1.9% to 28,540.83 points and Shanghai Composite closed down 2.3% to 3,421.41 points yesterday.
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