HONG KONG, Feb 26, 2021 (BSS/AFP) – Equity markets suffered another sell-
off Friday on fears that an expected strong global economic recovery this
year will fan inflation and force central banks to hike interest rates,
despite reassurances that ultra-loose monetary policies will be kept in place
for as long as needed.
The rollout of vaccines, slowing of infections and Joe Biden’s impending
huge US stimulus are proving to be a double-edged sword for traders as they
weigh the much-needed return to pre-pandemic life with the prospect that
prices will soar.
And there is a worry this would threaten one of the key pillars of the
rally on world markets from their March nadir — record-low borrowing costs
and a vast bond-buying programme.
Alarm bells have been ringing for weeks as the yield on benchmark 10-year
US Treasuries climbed to one-year highs as investors moved out of the safe
havens — yields rise as prices fall — and on Thursday a better-than-
expected read on US jobless claims pushed them up further.
Yields have also advanced in other parts of the world, including Australia,
France and Germany.
That sparked a hefty sell-off in New York as all three main indexes tanked
— led by the Nasdaq’s 3.5 percent plunge as tech firms are more susceptible
to higher interest rates.
And Asia followed suit, with Tokyo, Hong Kong, Sydney, Seoul and Taipei
down more than two percent while Shanghai and Singapore shed more than one
percent. There were also losses in Wellington and Jakarta.
The selling comes despite constant reassurances from Federal Reserve
officials, led by boss Jerome Powell, that they are not worried about
inflation and the rise in Treasury yields is a sign that the economic outlook
is bright — and rates will not rise for the foreseeable future.
– Biden’s minimum wage blow –
“With the US economic outlook boosted by pandemic improvement, vaccine
distribution and the prospects of President Biden’s fiscal package getting
through Congress, investors are now fixated on the risk of inflation and
economic overheating,” said Tai Hui, at JP Morgan Asset Management.
“Investors may not be fully convinced by the Federal Reserve’s commitment
to keep monetary policy loose for an extended period.
“The likely rise in headline inflation, partly due to the low base from 12-
months ago, could challenge this dovish view, even though we agree that
sustained demand-side inflation pressure is still some quarters away.”
He added that the rise in yields “serves as a trigger to investors who have
been looking for a reason for an equity market correction. Volatility will
continue but this could provide an interesting opportunity for investors to
reload on equities”.
And Silvia Dall’Angelo at fund manager Federated Hermes added: “Central
banks’ liquidity will continue to flow abundantly throughout 2021 at least,
yet it’s unclear whether markets can ever get enough of it.”
In Washington, the House is expected to vote on Biden’s enormous economic
rescue package later in the day, though his hopes of including a $15-an-hour
minimum wage in it were dealt a blow Thursday when an official said it could
not be passed using a simple majority in the Senate.
Still, the vast majority of the $1.9 trillion package — which does include
$1,400 cash handouts — is expected to get through Congress and be signed by
the president later in March.
– Key figures around 0230 GMT –
Tokyo – Nikkei 225: DOWN 2.4 percent at 29,446.17 (break)
Hong Kong – Hang Seng: DOWN 2.1 percent at 29,455.12
Shanghai – Composite: DOWN 1.3 percent at 3,539.11
Euro/dollar: UP at $1.2177 from $1.2175 at 2130 GMT
Pound/dollar: DOWN at $1.4010 from $1.4011
Euro/pound: UP at 86.90 pence from 86.89 pence
Dollar/yen: DOWN at 105.91 yen from 106.25 yen
West Texas Intermediate: DOWN 0.6 percent at $63.16 per barrel
Brent North Sea crude: DOWN 0.3 percent at $66.70 per barrel
New York – Dow: DOWN 1.8 percent at 31,402.01 (close)
London – FTSE 100: DOWN 0.1 percent at 6,651.96 (close)