Due to the Fed’s aggressive stance, Asian markets struggle to keep pace with Wall Street.
After a rough week marked by the Federal Reserve’s “hawkish” tone, Asian markets limped into Friday’s weekend. Oil prices fell after another round of losses, and the U.S. dollar rose against other major currencies.
The area didn’t follow Wall Street’s lead. It didn’t rebound from severe intraday losses to end the day on a positive note after plunging in the past because of fears about rising interest rates.
Analysts are relieved that the Fed has made it clear that it will move more quickly to rein in 40-year-high inflation by raising borrowing rates and selling off assets.
The Fed’s determination to tighten has pushed the dollar higher versus the majority of other major currencies, most notably the euro, which has been held down by European politicians’ reluctance to act forcefully on prices. The euro is hovering at a one-month low.
Markets have been under tremendous pressure this year as the end of ultra-cheap central bank liquidity, a COVID-fueled slowdown in China’s economic growth, the Ukraine crisis, and skyrocketing inflation all combine to create a perfect storm.
Nonetheless, all three Wall Street indexes finished marginally higher, having recovered from severe losses earlier in the day as a result of bargain-hunting, while other analysts believed recent selling had gone too far.
However, Asia was unable to take control.
Tokyo, Hong Kong, Shanghai, Seoul, Singapore, Bangkok, and Wellington all had declined, while Sydney, Taipei, Manila, and Jakarta all saw increases.
Despite the US and its allies’ promise to release more than 200 million barrels of crude oil over the next few months, crude oil prices didn’t change much in early Asian trade.
The decision comes as more and more people are worried about Chinese demand because of lockdowns and other strict control measures in the country’s biggest city, Shanghai.
There is, however, a sense that the crisis in Ukraine, as well as any more sanctions against Russia, could push the price of oil up again.
“I continue to believe… the sentiment-driven sell-off will end, and fundamentals will reassert themselves, particularly as more market players become concerned about how the US government will replace the SPR drawdown,” said Stephen Innes of SPI Asset Management.
There are still a lot of questions about how much oil Russia will have available in the face of a drop in Chinese demand and a shorter summer driving season in the United States because of rising gas prices.
He said that “deficits are expected to remain, but they will be a little lessened by the quick release of strategic stock from May to November and slower demand growth.”
