Asian markets stutter as traders eye Fed move, Delta spread

HONG KONG: Asian markets drifted Friday as a broadly positive week drew to a close with investors pricing in the likelihood that Federal Reserve officials will start withdrawing the vast financial support put in place at the start of the pandemic.

The fast-spreading Delta virus variant, which is forcing governments to introduce containment measures, and the Chinese government's campaign to tighten its grip on the world's number two economy were also playing on sentiment.

Data on Thursday showed US producer prices rose more than twice as much as forecast on-month in July, while the annual rate hit a record, reinforcing traders' belief that the blockbuster economic recovery was putting huge pressure on inflation.

Asian shares fall as Delta fears eclipse Wall Street uptick

The figures ramped up expectations the Fed, in a bid to prevent overheating, will start reducing its colossal bond-buying programme earlier than it had thought.

"Global investors are assessing the implications of the spread of the Delta virus, the possible tapering by the Fed, and China's clampdown," said Geir Lode, of Federated Hermes.

"With equity markets almost doubling since the start of the pandemic and a bull market lasting over a decade, investors are questioning how far the bull market can rally."

"We therefore think that the inflation risk is on the upside and that the Fed will start tapering at the end of the year," he added.

However, while the ultra-cheap borrowing that has been key to propelling the pandemic rally for more than a year looks likely to end, traders remain broadly upbeat, with the Fed -- and other central banks -- likely to take time withdrawing the support.

Traders will be keeping a hawk-like eye on Fed boss Jerome Powell's speech at this month's gathering of central bank and finance leaders in Jackson Hole, Wyoming, hoping for a hint at when he will act.

Wall Street's three main indexes ended at record highs again Thursday, and Asia fought to take up the baton.

After a weak start, Tokyo, Shanghai, Sydney, Wellington and Jakarta all rose, though Hong Kong, Singapore, Seoul, Taipei and Manila fell.

Investors are keeping an eye on developments in China after officials said they would put in place tougher anti-monopoly rules and penalties over the next five years, as Beijing looks to tighten the screw further after a recent crackdown on a range of industries.

Tech and private equity firms have already been caught in the crosshairs of leaders, and a statement late Wednesday indicated finance, public health, and food and drug manufacturing would also be targeted.

Crude prices extended their recent sell-off fuelled by concerns that the Delta mutation that is coursing through the world would slam demand, with the International Energy Agency warning as much in a report Thursday.

"The oil market will likely continue to maintain a nervous watch, especially for a deterioration in China and the US," Vandana Hari, of energy consultant Vanda Insights, said, adding that the IEA report "validated fears over a slowdown in second-half demand".

Tokyo - Nikkei 225: UP 0.1 percent at 28,043.01 (break)

Hong Kong - Hang Seng Index: DOWN 0.1 percent at 26,483.55

Shanghai - Composite: UP 0.3 percent at 3,535.02

Dollar/yen: DOWN at 110.40 yen from 110.43 yen at 2100 GMT

Pound/dollar: UP at $1.3815 from $1.3809

Euro/dollar: UP at $1.1740 from $1.1733

Euro/pound: UP at 84.98 pence from 84.94 pence

West Texas Intermediate: DOWN 0.7 percent at $68.60 per barrel

Brent North Sea crude: DOWN 0.7 percent at $70.83 per barrel

New York - Dow: UP less than 0.1 percent at 35,499.85 (close)

London - FTSE 100: DOWN 0.4 percent at 7,193.23 (close)