HONG KONG (AFP) – Asian investors struggled yesterday to maintain the week’s positive momentum as they eyed sharp losses on Wall Street that came after forecast-beating jobs data suggested the Federal Reserve (Fed) would have to keep lifting interest rates.
Regional markets have enjoyed a strong start to the year, largely thanks to optimism over China’s re-opening and signs it is toning down its tough talk on a number of issues domestically and geopolitically.
But long-running fears that central bank policy tightening would cause a recession were brought back into play by figures showing more jobs than expected were created in the United States (US) private sector last month.
The reading from payroll firm ADP indicated the labour market remained tight – putting upward pressure on wages – meaning the Fed still had much work to do in its battle against decades-high inflation.
Several top Fed officials also lined up on Thursday to warn the bank would likely have to keep lifting borrowing costs this year, with some suggesting they could go as high as 5.4 per cent.
Minutes from the December meeting reinforced bets on further tightening.
Thursday’s data makes the release of a key non-farm payrolls (NFP) report later in the day much more important.
“What the Fed really wants to see is some slack build up in the labour markets, in hopes it can do this gently without creating much of a downturn,” former Indian central bank boss Raghuram Rajan told Bloomberg Television.
“But it may well be that by the time it seems that it will have raised rates enough, that the momentum takes us down to a mild recession at the very least.”
SPI Asset Management’s Stephen Innes added: “Although ADP has not been the sharpest predictor for NFP, any incremental evidence that the labour market remains hot supports the Fed’s hawkish impulse.”
Asian markets were mixed after all three main indexes on Wall Street fell more than one per cent.
Hong Kong dipped after three days of gains that saw it add more than six per cent, while Singapore, Mumbai, Wellington and Manila were also in the red. Shanghai edged up, with help from reports saying China was considering relaxing strict rules on borrowing for property developers.
Tokyo, Sydney, Seoul, Bangkok and Jakarta also rose.
Still, there is a general sense of optimism in Asia as China emerges from almost three years of zero-COVID lockdowns and other strict containment measures.
There is hope that the easing of restrictions will see a boom in countries’ tourism industries, and Hong Kong is a major beneficiary, with the border set to open at the weekend.
Still, China’s swift exit from zero-COVID has also caused plenty of concern as infections soar across the country and put further pressure on the already stuttering economy.
This has helped cause a slump in oil prices as investors bet on a drop in demand from the world’s biggest importer of the commodity. Both main contracts rose yesterday but they are both down almost 10 per cent on the week.
London, Paris and Frankfurt all rose after opening.
