Asian shares edgy amid inflation fears

2021-10-13 08:00:47

Asian shares were on edge as worries about soaring power prices fuelling inflation weighed on sentiment and drove expectations the United States would taper its emergency bond-buying program, holding the dollar at a one-year high.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.1 per cent in early trading, steadying after falling more than one per cent a day earlier, in what was its worst daily performance in three weeks.

Moves were muted in most markets. Chinese blue chips were flat, Australia eked out a 0.06 per cent gain, while Japan’s Nikkei shed 0.2 per cent.

Hong Kong’s stock market was closed in the morning because of a typhoon.

Also contributing to the uneasy mood, investors are waiting for a raft of data releases due to be published on Wednesday, including Chinese trade figures, US consumer price inflation data, and minutes of the US Federal Reserve’s September policy meeting.

The looming start of company earnings season also deterred some investors from placing large bets.

“This week, inflation is overriding pretty much everything else, because that pushes Fed expectations one way or the other and that’s just so dominant,” said Stefan Hofer, chief investment strategist for LGT in Asia Pacific.

“This earnings season is also critical because in the previous one, earnings especially in the US, were very strong, partly because of the base effect.

“The third quarter may be a little more standard,” he added.

The US Federal Reserve is inching closer to starting to taper its massive pandemic relief bond purchase program, a decision that is complicated by growing fears around the world that rising energy costs will stoke inflation while also curtailing the economic recovery.

Oil prices are currently near multi-year highs, but were steadier in Asian morning trading.

Brent crude fell 0.29 per cent to $US83.18 a barrel, just off Monday’s three-year high of $US84.6, while US crude shed 0.2 per cent to $US80.48 off Monday’s seven-year high of $US82.18.

Despite growing inflation worries, there is growing optimism about the state of the economic recovery.

Three US Federal Reserve policymakers on Tuesday said the US economy has healed enough for the central bank to begin to withdraw its crisis-era support.

As a result, shares slipped on Wall Street overnight. The Dow Jones Industrial Average fell 0.34 per cent, the S&P 500 lost 0.24 per cent, and the Nasdaq Composite dropped 0.14 per cent.

The likelihood of tapering also meant the US dollar was strong, sitting just below a one-year high versus other majors hit the previous day.

The dollar index was last at 94.413, just off just Tuesday’s high of 94.563, the highest since September 2020.

It was particularly strong against the yen with one US dollar buying 113.39 yen. As Japan buys the bulk of its oil from overseas, a week yen means it is struggling even more with the high prices.

Gold was steady ahead of the data from the US, with the spot price up 0.04 per cent to $US1,760 an ounce, in the middle of this month’s range.

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