Markets rise on the prospect of a recovery, although tightening is expected.
Investors remained optimistic about the global recovery prospects on Thursday, but they also braced for the end of an era of cheap money, with inflation continuing to rise as a result of supply chain issues and improving demand.
Concerns over continually high price rises are prompting authorities to tighten their belts after a year and a half of ultra-loose monetary policies from the world’s central banks, which helped stimulate a recovery from the economic crisis and send shares surging.
Several have already begun, like South Korea and New Zealand, with Singapore joining on Thursday, but all eyes are on the Federal Reserve, which aims to move next month or in December, according to minutes from its most recent meeting.
A stronger-than-expected figure on US consumer inflation bolstered the case for the Fed to begin reducing its mammoth bond-buying program in November, but the biggest question on traders’ minds today is when it will start raising interest rates.
“Wednesday’s still-high consumer price index reflects approximately six months’ worth of hot inflation data — implying that inflation isn’t as temporary as many investors previously assumed,” said Quadratic Capital Management’s Nancy Davis.
“Supply-chain disruptions and a rapid rise in costs due to the labor shortage are driving the overall inflation story.”
China announced on Thursday that factory-gate inflation touched its highest level in a quarter-century in September, owing to a rise in commodity costs and soaring demand as industries reopen.
There are also concerns that the rises would spread to other economies, given China’s importance as a global exporter.
Meanwhile, some analysts have predicted a period of stagflation, in which expenses rise but economic development slows.
Despite this, investors in Asia are confident following a broadly strong lead from Wall Street.
Tokyo added 1.5 percent, while Seoul, Manila, and Jakarta each added over 1%. Sydney, Wellington, Taipei, and Mumbai all saw increases, while Singapore climbed as investors shrugged over the city’s central bank’s surprise policy tightening. Shanghai, on the other hand, fell.
At the open, London, Paris, and Frankfurt all rose.
According to Virginia Martin Heriz of JP Morgan Asset Management, the forecast “still favors equities in the medium term, though less so than before.”
“We are not talking about stagflation because we are still growing far over trend,” she said, despite signals of a downturn in the US and Europe.
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