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Asian markets drop as traders brace for Fed hike

HONG KONG (AFP) – Asia stocks fell yesterday as markets braced for a sharp United States (US) interest rate hike and similar moves by other central banks as they struggle to control inflation, with traders increasingly worried about another possible recession.

Surging prices, moves to tighten monetary policy, China’s COVID lockdowns, the Ukraine conflict and a stronger dollar have come together in recent weeks to cause a massive headache for investors, sending them running to the hills.

All eyes are on the conclusion today of the US Federal Reserve’s two-day policy meeting, where it is expected to lift borrowing costs 0.5 percentage points for the first time since 2000.

However, while officials see a hawkish move as necessary to control 40-year high inflation while still allowing for economic growth, there is a growing unease that they could knock the fragile pandemic recovery off course and even cause a recession.

Meanwhile, the policy board is also expected to discuss offloading the trillions of dollars worth of bonds bought to help keep prices subdued in the past, a move known as quantitative easing.

“With a 50 basis point hike… all but certain, the (post meeting) press conference will provide important colour around the prospects of a soft landing, the neutral fed funds rate and balance sheet normalisation,” said SPI Asset Management’s Stephen Innes.

“One question on everyone’s mind: Are 75 basis point increments on the table?”

Forecasts for a swift run-up in rates this year have hammered tech firms who are reliant on debt to fund growth, though dip-buying helped them record a much-needed gain on Monday in New York.

Asian traders were unable to track the positive lead with liquidity thinned by public holidays around the region. Sydney fell after the Reserve Bank of Australia lifted interest rates 25 basis points, the first hike since 2010 and more than the 15 points expected. Officials also indicated further increases were in the pipeline.

The move sent the Australian dollar briefly rallying more than one per cent against the greenback before settling back slightly.

Shares in Seoul, Bangkok and Wellington were also down, while London was on the back foot in early trade. Frankfurt and Paris edged up.

Tokyo, Shanghai, Mumbai, Singapore and Jakarta were closed for holidays.

Hong Kong returned from a long weekend break to shed more than two per cent in early exchanges before reversing the losses to extend a more than four per cent surge on Friday.

Alibaba was a key support in the bounce as it recovered from an initial drop of more than nine per cent in reaction to a report by Chinese state broadcaster CCTV that officials in Hangzhou, where the firm is based, had imposed curbs on an individual surnamed Ma – raising worries about founder Jack Ma.

The losses were soon erased, however, after police indicated the accused person’s name was spelled with three Chinese characters. Jack Ma’s Chinese name is Ma Yun.

Investors were also reeling from a sharp slowdown in Chinese activity caused by lockdowns in key parts of the country including financial hub Shanghai, and strict containment in Beijing.

The measures, and Chinese leaders’ refusal to shift from their zero-COVID policy, have hamstrung the world’s number two economy and figures in other countries including the US suggest they are now having a global impact.

The strife in China weighed on oil prices owing to fears about the impact on demand from the biggest crude importer.

Oil prices edged up as European Union chiefs discuss a possible embargo on shipments from Russia linked to its invasion of Ukraine.

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