Asian equities were mixed Tuesday with inflation still a point of concern, while traders were trying to gauge the success of a summit between Joe Biden and Xi Jinping as they looked to guide their way through a period of tension.
Global markets have enjoyed about 18 months of healthy gains — with many hitting record or multi-year highs — thanks to ultra-loose central bank monetary policies put in place at the start of the pandemic.
But with the recovery well on track and people returning to a semblance of normality, inflation is surging to levels not seen in decades owing to a spike in demand and supply chain snarls — forcing policymakers to turn off the taps.
Now there is a growing concern that officials — particularly at the Federal Reserve — will have to withdraw their massive support measures faster than hoped, while some observers have warned they could be leaving it too late, and risking prices running out of control.
Among them are former New York Fed president Bill Dudley, who told Bloomberg TV the central bank was “going to have to get the taper done quicker”, though he added that moving too fast could spook investors and cause a “taper tantrum”.
And ex-Richmond Fed boss Jeffrey Lacker warned: “They’re on track to a major policy blunder.”
“They need to pivot, recalibrate pretty rapidly. They need to accelerate the taper, get rate increases started earlier next year, in the first half, and they’re going to need some good luck.”
The concern was also being felt across the Atlantic, where Bank of England chief Andrew Bailey said he was “very uneasy about the inflation situation”.
Still, for now, investors remain optimistic that officials are on the right track, with Wall Street’s three main indexes as well as markets in Europe sitting at or just below all-time highs.
“We do still see quite an accommodative fiscal and monetary policy continuing throughout 2022,” Sarah Shaw, of asset manager 4D Infrastructure, said.
“Of course, should inflation prove to be more permanent or higher than expected, then central bank action is inevitable.”
Tuesday’s release of data on October retail sales will be closely followed for an idea about the impact of inflation on consumer appetite.
After a flat day on Wall Street, Asia fluctuated.
Hong Kong led gains with tech firms building on a recent advance as concerns about China’s recent crackdown on the sector ease, while the crisis at developer China Evergrande has also moved into the background.
Tokyo, Singapore, Taipei, Manila, Bangkok and Jakarta also rose but Shanghai, Seoul, Mumbai and Wellington slipped back.
London rose while the pound rallied after data showed a jump in UK payrolls last month as the economy emerges from lockdowns. Paris extended Monday’s record and Frankfurt also rose.
Biden and Xi’s much-anticipated virtual talks ended after more than three hours, with both sides trading strong warnings on the future of Taiwan while they also spoke about human rights and Xinjiang.
But they called for improved communications, with Biden saying it was their “responsibility as leaders of China and the United States to ensure that the competition between our countries does not veer into conflict, whether intended or unintended”.
“We need to establish some common sense guardrails,” he said.
While no breakthroughs on the many issues that dog relations were expected, Rodrigo Catril at National Australia Bank said “the fact that both presidents are willing to talk to each other is good news”.
“An ease in trade tensions is a potential outcome while issues around human rights, Taiwan and Covid are likely to remain unresolved.”