Shares mixed as traders await Fed hike

COOL WITH THE BULL People pose with the Wall Street Bull in the financial district in Manhattan, New York City on Tuesday, June 14, 2022 (June 15 in Manila). AFP PHOTO

HONG KONG: Equities were mixed on Wednesday, with investors nervously awaiting a Federal Reserve (Fed) interest rate decision that has taken on greater significance since a forecast-busting inflation report sent shock waves through world markets.

Trading floors saw a sea of red at the start of the week after data showed that US consumer prices soared at their fastest pace in four decades last month, confounding hopes they were stabilizing and putting pressure on Fed officials to act.

The news ramped up bets that the US central bank would hike interest rates at a steeper and faster pace than expected as it struggles to retain credibility.

Before Friday’s data, the Fed had been tipped to lift borrowing costs by half a point when its policy meeting ends on Wednesday, but investors are now widely anticipating a three-quarter-point increase, with some even suggesting 1 percentage point.

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The moves fanned worries that the tighter monetary conditions would deal a blow to the American economy and potentially send it into recession next year.

Still, many observers say acting now is the only option available to policymakers if they want to rein in prices and prevent stagflation.

“The sooner they are going to be clear about how quickly they are going to raise rates and what is an acceptable rate of inflation for them, the sooner markets will calm down,” Wincrest Capital’s Barbara Ann Bernard told Bloomberg Television.

StoneX Financial’s Matt Simpson said: “A bullish outcome for risk-appetite is the well-telegraphed 75-basis-point hike, conviction from the Fed that they’ll manage a soft landing, alongside a downwardly revised CPI (consumer price index) forecast for good measure.”

But he warned that a half-point hike “could inadvertently weigh on sentiment as markets are concerned the Fed aren’t taking inflation seriously enough.”

In Asia, markets were mixed, with some seeing a pickup on bargain-buying after the week’s painful start.

Hong Kong and Shanghai enjoyed some healthy buying after data showed an improvement in Chinese retail sales and factory output last month, thanks to an easing of Covid-19 restrictions in major cities.

The readings lifted hopes that state support can help lift the world’s second-largest economy out of its torpor.

Singapore and Mumbai also ended in the positive territory, while Tokyo, Sydney, Seoul, Taipei, Manila, Bangkok and Jakarta slipped.

London, Paris and Frankfurt were up in the morning, with traders following the European Central Bank after it said policymakers would hold an exceptional meeting on Wednesday to “discuss current market conditions.”

The announcement saw the euro rally against the dollar in hopes for details on how officials would tackle the eurozone’s embattled bond market. Observers are predicting the single currency could rise back above $1.05.

In company news, the management agency of K-pop supergroup BTS plunged by a quarter in Seoul after the band announced they were taking an indefinite break.

The seven members, who have generated billions of dollars for South Korea’s economy, made the shock announcement on Tuesday.

On Wednesday morning, the band’s label HYBE collapsed about 27 percent, wiping $1.6 billion off its market valuation.