Asia markets retreat as rate fears trump recovery

HONG KONG, (AFP) – Most stocks fell in Asia yesterday as the euphoria from the Federal Reserve’s upbeat economic outlook was replaced by fears the recovery will fan inflation and force policymakers to wind back on their pledge to maintain record interest rates for as
long as needed.

While mind-boggling amounts of government stimulus and central bank support have helped the global economy bounce back from last year’s virus-induced collapse, traders have been battling to reconcile the bright outlook and the danger of runaway prices.

The Fed on Wednesday sought to placate the pessimists by once again promising it will not touch rates until it is satisfied unemployment has been controlled and inflation is running hot for an extended period.

Bank boss Jerome Powell and Treasury Secretary Janet Yellen have repeatedly said the expected lift in inflation this year would be short-term and that a rally in benchmark Treasury yields – a guide to future rates – was a sign of confidence in the economy.

After dipping on Wednesday, yields hit a 14-month high on Thursday, sparking a plunge in United States (US) markets with the Nasdaq more than three per cent down as tech firms are more susceptible to higher interest rates.

The Dow and S&P 500 retreated from record highs. And the losses carried through to Asia where Hong Kong dropped 1.9 per cent and Shanghai shed 1.7 per cent with Tokyo and Taipei also shedding more than one per cent. Manila sank almost three per cent with Sydney, Seoul, Jakarta and Bangkok also in the red.

Tokyo’s Nikkei was also dealt a blow after the Bank of Japan said it would stop buying exchange traded funds linked to the index as part of its economic support programme.

A woman wearing a protective mask walks in front of an electronic stock board showing Japan’s Nikkei 225 index at a securities firm. PHOTO: AP