HONG KONG, May 5 — Asian markets mostly fell today after Treasury Secretary Janet Yellen’s suggestion that US interest rates might need to be hiked, as government spending measures fan inflation and the economy surges.
The comments appeared to be a deviation from the united front top officials have put up in trying to reassure investors that the Federal Reserve’s ultra-easy monetary policies will remain in place until the recovery is well on track.
Investors are also awaiting the release of data on US private jobs creation later in the day, which will give clues about Friday’s key non-farm payrolls report which in turn is closely watched for an idea about the state of the economic recovery.
Former Fed chief Yellen also raised eyebrows as the Treasury Secretary usually avoids talking about central bank matters.
In a pre-recorded conversation with The Atlantic, she said borrowing costs might have to be lifted “somewhat” to temper inflation if President Joe Biden’s latest spending plans — which are worth more than US$4 trillion — are enacted and the economy heats up.
That threw a spanner in the works on Wall Street where all three main indexes fell sharply, led by the Nasdaq as tech firms are more at risk from higher rates.
However, Yellen later clarified the comments and said she was not predicting nor suggesting the Fed tighten rates, which tempered losses on the S&P 500 and helped the Dow end slightly higher. But the Nasdaq ended sharply down.
Analysts said they still expect the central bank to keep its policies accommodative for some time.
“Yellen’s comments did not specify a timeframe for rises and she clarified her comments by saying that she was not recommending FOMC rate hikes,” said Kim Mundy at the Commonwealth Bank of Australia.
“We still expect the (policy board) will be very patient as economic data improves.”
More room for gains
Asian markets mostly dropped with Hong Kong, Wellington, Taipei, Manila and Jakarta all well down, while Singapore lost more than one per cent as traders fret about a fresh spike in infections in the city that has forced officials to impose containment measures.
It has also led the city-state to review the opening of a travel bubble with Hong Kong due to open this month.
Sydney and Jakarta rose, while Mumbai was lifted after the Indian central bank pledged billions of dollars to boost its flagging vaccine programme as the country battles a frightening spike in infections and deaths.
Tokyo, Shanghai and Seoul were closed for holidays.
London, Paris and Frankfurt were all sharply higher in morning trade.
Deborah Cunningham, at Federated Hermes, added: “While price pressures are increasing and many consumers are itching to spend stimulus cheques, the Fed has been deflecting every suggestion of tightening.
“Investors don’t seem to believe that the Fed wants the economy to be piping hot and that it considers the recent rise in activity as lukewarm. We think it could start to taper (bond) purchases this year, but no indication yet. These days, the Fed seems happy to make everyone wait.”
And while there is growing concern that the more than year-long rally in equities may have gone a little too far — to record or multi-year highs — there is a general feeling that investors can still push further gains thanks to the recovery, government spending and central bank largesse.
“With the month of May just beginning — and already getting plenty of scrutiny as to whether investors should ‘sell in May and go away’ — it seems pretty clear to me that, based on how well a number of fluid factors are playing out, the S&P 500 is ripe for advancing another 10 per cent from its April 30 level of 4,181,” said market strategist Louis Navellier.
Oil prices rose more than one per cent, building on a two-day rally fuelled by demand optimism as major markets slowly reopen and vaccinations are rolled out, and also following a report showing a drop in US stockpiles. — AFP
