# Asian shares slump as Powell warns on inflation
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-01-27
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: Market Reacts to Federal Reserve's Hawkish Tone, Oil
Meta Description: Read how the Federal Reserve's tightening policies impacted Asian shares and global markets, as investors brace for potential interest rate hikes and
URL: https://financedigest.com/asian-shares-slump-as-powell-warns-on-inflationhtml

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By Andrew Galbraith

SHANGHAI (Reuters) – Asian shares fell to their lowest in more than 14 months, short-term U.S. [yields rose to 23-month highs and the dollar strengthened on Thursday after the Federal Reserve’s chairman signaled plans to steadily tighten](https://www.financedigest.com/german-yields-steady-spreads-tighten-after-recent-repricing.html "German yields steady, spreads tighten after recent repricing") policy.

At the same time, [rising investor concerns](https://www.financedigest.com/shares-rise-but-concern-mounts-over-inflation-flare-up.html "Shares rise, but concern mounts over inflation flare-up") over political tensions between Russia and Ukraine exacerbated worries over tight energy market supply, keeping oil prices elevated at multi-year highs.

In its [latest policy update](https://www.financedigest.com/how-the-latest-microsoft-365-updates-are-helping-to-empower-frontline-staff.html "How the latest Microsoft 365 updates are helping to empower frontline staff") on Wednesday, the Fed indicated it is likely to raise U.S. [interest rates](https://www.financedigest.com/interest-rate-and-recession-fears-knock-stocks-and-oil.html "Interest rate and recession fears knock stocks and oil") in March, as has been widely expected, and reaffirmed plans to end its bond purchases that month before launching a significant reduction in its asset holdings.

But in the follow-up [press conference](https://www.financedigest.com/5-top-tips-when-holding-a-crisis-press-conference.html "5 Top Tips When Holding a Crisis Press Conference"), Powell warned that inflation remains above the Fed’s long-run goal and supply chain issues may be more persistent than previously thought.

There was a marked shift in terms of a relatively dovish statement and then a relatively hawkish press conference,” said David Chao, [global market](https://www.financedigest.com/n95-masks-market-rapid-expansion-of-the-life-science-industry-is-anticipated-to-drive-the-global-market.html "N95 Masks Market: Rapid Expansion of the Life Science Industry is Anticipated to Drive the Global Market") strategist, Asia Pacific (ex-Japan) at Invesco.

Powell (is) not committing to the size or the frequency of [rate hikes](https://www.financedigest.com/sp-warns-of-possible-economic-blow-hit-to-japan-inc-from-boj-rate-hike.html "S&P warns of possible economic blow, hit to Japan Inc from BOJ rate hike") and also the timing of the balance sheet reduction. I [think that buys](https://www.financedigest.com/think-big-make-your-new-years-resolutions-to-buy-a-holiday-home-in-2017.html "Think big – make your New Year’s resolutions to buy a holiday home in 2017!") him a bit of wiggle room as to how quickly and with what velocity he wants to normalise monetary policy in the U.S. … it’s very data dependent and so we’re certainly watching other [economic data that’s going to be released especially inflation data, inflation expectations data, which I think could trigger more aggressive monetary policy tightening.”](https://www.financedigest.com/oil-slumps-on-economic-data-stronger-u-s-dollar.html "Oil slumps on economic data, stronger U.S. dollar")

Concerns that the Fed will increasingly prioritise fighting [inflation walloped share](https://www.financedigest.com/european-shares-set-for-weekly-gain-on-u-s-inflation-outlook.html "European shares set for weekly gain on U.S. inflation outlook") markets, erasing a Wall Street rally. \[.N\]

[Asian shares](https://www.financedigest.com/asian-shares-gain-as-fears-about-rapid-fed-hikes-bank-crisis-fade.html "Asian shares gain as fears about rapid Fed hikes, bank crisis fade") also tumbled, with MSCI’s broad gauge of regional markets outside Japan down 1.6% in early trade on Thursday at its lowest level since early November 2020.

Hong Kong’s Hang Seng index and Australian [shares fell 2% and Chinese blue-chips were 0.2% lower](https://www.financedigest.com/britains-next-sees-lower-clothing-inflation-shares-dip-on-cautious-outlook.html "Britain’s Next sees lower clothing inflation, shares dip on cautious outlook").

In Tokyo, the Nikkei fell 1.9%, touching its [lowest point since](https://www.financedigest.com/ukraine-war-energy-crisis-send-german-business-sentiment-to-lowest-level-since-june-2020.html "Ukraine war, energy crisis send German business sentiment to lowest level since June 2020") December 2020.

The policy-sensitive U.S. 2-year yield jumped amid expectations of Fed tightening, rising to a top of 1.1780% in morning trade in Asia, a level last reached in February 2020. The benchmark 10-year yield also ticked up from Wednesday’s close, rising to 1.8548% from 1.846%.

The [dollar rose on the back of higher](https://www.financedigest.com/powells-warning-on-higher-u-s-rates-pushes-dollar-to-3-mth-high.html "Powell’s warning on higher U.S. rates pushes dollar to 3-mth high") yields, lifting the U.S. dollar index, which measures the greenback against major peers, to 96.557.

The yen [edged slightly higher](https://www.financedigest.com/european-shares-edge-higher-on-healthcare-lift-weak-china-data-stokes-worries.html "European shares edge higher on healthcare lift, weak China data stokes worries") to 114.57, while the euro weakened to $1.1230.

Adding to global investor concerns, the United States said on Wednesday it had [set out a diplomatic path to address sweeping Russian demands](https://www.financedigest.com/aussie-supermarkets-set-to-capitalise-on-high-inflation-but-softer-demand-ahead.html "Aussie supermarkets set to capitalise on high inflation, but softer demand ahead") in eastern Europe, as Moscow held security talks with Western countries and intensified its military build-up near Ukraine with new drills.

Worries over tensions between Russia and Ukraine had lifted crude prices above $90 per barrel a day earlier, a level last seen in October 2014.

On Thursday, global [benchmark Brent crude eased](https://www.financedigest.com/china-steps-up-easing-cuts-lending-benchmarks-to-revive-faltering-economy.html "China steps up easing, cuts lending benchmarks to revive faltering economy") 0.2% but remained just below $90 per barrel at $89.75. U.S. West Texas Intermediate crude was down 0.2% at $87.18 per barrel.

U.S. officials [say they are in talks with major energy-producing countries and companies worldwide over a potential](https://www.financedigest.com/virgin-orbit-says-space-startup-in-talks-with-potential-investors.html "Virgin Orbit says space startup in talks with potential investors") diversion of supplies to Europe if Russia invades Ukraine, although the White House said it faces challenges finding alternative sources of energy supplies.

Spot [gold slipped 0.1% to $1,816.42 an ounce on the firmer dollar](https://www.financedigest.com/stocks-and-gold-cheer-u-s-inflation-picture-while-dollar-slides.html "Stocks and gold cheer U.S. inflation picture, while dollar slides").

(Reporting by Andrew Galbraith; editing by Richard Pullin)


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