Asian markets mixed as rally stalls, inflation casts shadow

HONG KONG: Asian markets were mixed Thursday as investors took a breather following a recent run-up, while optimism about the global recovery remains shackled by concerns that a surge in inflation will force central banks to rein in monetary policy earlier than flagged.

The rollout of vaccines, reopening of economies, trillions of dollars in stimulus and central bank largesse have combined to fuel a rally in world equities since their pandemic-induced collapse at the start of last year.

And while that enormous splurge appears to have paid off, with lives slowly returning to a semblance of normal and businesses back up and running, traders have in recent months grown increasingly worried about the impact on prices.

While most top officials, led by the Federal Reserve, have repeatedly said any inflation spike will be temporary and their ultra-easy monetary policies will be kept in place until the recovery is well on track, investors continue to worry.

There are signs of movement, however, in some capitals with the central banks of New Zealand, Canada and Norway suggesting they could start tapering their bond-buying programmes or even interest rates as soon as next year, while Iceland has already done so.

"Investors appear to be giving the Fed the benefit of the doubt with their transitory inflation forecast, but we suspect the window of confidence could close without supporting evidence in coming months," Craig W. Johnson, strategist at Piper Sandler & Co, said.

He added that until dealers have a better handle on the likely course of inflation and banks' plans, markets would likely continue to be gripped by volatility and economic uncertainty.

China, US talk trade

After another tepid lead from Wall Street, Asia struggled to maintain this week's advances. Tokyo, Hong Kong, Seoul, Wellington and Taipei were all lower while Shanghai, Sydney, Singapore, Manila and Jakarta rose.

Traders are now awaiting the release later in the day of key data on US jobless claims, which will provide a fresh snapshot of the recovery in the world's top economy, while updated gross domestic product growth data will also be released.

Separately, China said top trade officials had held "candid, pragmatic" talks with their US counterparts for the first time since Joe Biden became president, as Washington scrutinises whether Beijing is holding up its end of a $200 billion trade pact signed last year.

US Trade Representative Katherine Tai has said she is analysing whether the terms of that deal have been met by China, with some experts saying Beijing is falling up to 40 percent short on its agreement to buy US goods.

On Thursday, China's commerce ministry statement said Chinese Vice Premier Liu He and Tai spoke in "constructive exchanges in an attitude of equality and mutual respect".

The pact came after a bruising, years-long tariffs war between the economic superpowers that sent world markets spinning.

Tokyo - Nikkei 225: DOWN 0.7 percent at 28,449.03 (break)

Hong Kong - Hang Seng Index: DOWN 0.5 percent at 29,011.39

Shanghai - Composite: UP 0.1 percent at 3,599.01

Euro/dollar: UP at $1.2209 from $1.2200 at 2030 GMT

Pound/dollar: DOWN at $1.4108 from $1.4124

Euro/pound: UP at 86.40 pence from 86.35 pence

Dollar/yen: DOWN at 109.07 from 109.13 yen

West Texas Intermediate: DOWN 0.6 percent at $65.79 per barrel

Brent North Sea crude: DOWN 0.6 percent at $68.43 per barrel

New York - Dow: FLAT at 34,323.05 (close)

London - FTSE 100: FLAT at 7,026.93 (close)