Thai, Asian markets sink as traders consider Fed tightening

Thai and other Asian markets collapsed Monday on growing expectations that the Federal Reserve will start raising interest rates as early as next year as the economic recovery looks set to overheat.

In an effort to calm traders concerned about rising inflation, central bank officials have pledged for months to maintain ultra-accommodative monetary policies until the recovery is well on track. But last week it brought out its predictions for tightening.

The news was initially received with great interest by investors, as the Fed’s so-called “dot plot” outlook for interest rates suggested they would not start rising until 2023, and would discuss how the bond-buying program would later handle this. year would be phased out.

But investors were shocked by comments from James Bullard, president of the St. Louis Federal Reserve, that the launch could happen as early as late 2022, adding that it made sense for officials to get “a little more aggressive” as inflation rises.

That led to significant losses on Wall Street, with the Dow and S&P 500 falling more than 1% and the Nasdaq nearly 1%.

And sales continued in Asia, with Tokyo leading the way down more than 3%, while Sydney lost more than 2%.

The main index of the Stock Exchange of Thailand (SET) fell 1.18%.

Hong Kong, Seoul, Taipei and Jakarta all lost more than 1%, with Singapore, Wellington and Manila also in the red. Shanghai was flat.

Still, observers said the losses were no surprise, as many markets have hit record or multi-year highs and investors took the opportunity to cash in on gains.

“The shift toward phasing out and pushing forward prime rate hikes could create jitters in markets with stocks vulnerable to a significant correction,” said AMP Capital’s Shane Oliver.

“But note that tapering isn’t monetary tightening (it’s just slower easing) and rate hikes are still a long way off in most developed countries.”

And Kerry Craig of JP Morgan Asset Management added: “We believe the market jitters will subside at the latest Federal Reserve meeting as inflation appears to be largely transient and growth prospects remain positive.”

Others said the pullback would likely be viewed as healthy, as many stocks appeared to be slightly overvalued.

There is also a feeling that while the Fed will begin talks this year about winding down its massive bond-buying program, the bank’s full-employment goal was still a long way off and talks about winding down would likely take some time.

The price of oil extended Friday’s gains on growing optimism that the global recovery will boost demand, with some experts suggesting it could climb as high as $100.

The gains came after dollar-priced black gold collapsed midway through last week as the prospect of higher interest rates propelled the greenback higher, making it more expensive for buyers using other currencies.