HONG KONG-Asian investors took fright Thursday at a forecast-busting reading on the US services sector that revived speculation the Federal Reserve could lift interest rates again, compounding a spike in oil prices that has fanned fresh inflation fears.
Wall Street dived and Treasury yields rose after the release of the Institute of Supply Management figures, which dealt a blow to hopes the US central bank had reached the end of its tightening cycle following a string of recent positive data. The reading put further upward pressure on the dollar, with the yen particularly in focus as it sat at its weakest point for 10 months — when Japanese officials intervened in money markets last year to prop it up.
After a rosy couple of weeks, the gloom that has characterised markets for much of the summer has returned as traders contemplate the possibility of more tightening and borrowing costs kept elevated for an extended period to tame inflation. Decision-makers at the Fed have given differing views on the best way forward, with some calling for more hikes and others suggesting rates are high enough.
Boss Jerome Powell has asserted that all decisions will be made based on how the data stacks up over the coming months. “The ISM services sector report underscores the resilience of the largest portion of the economy,” said LPL Financial’s Quincy Krosby. “This is certainly not good news for a data-dependent Fed.” In early Asian trade, Hong Kong, Shanghai, Tokyo, Sydney, Seoul, Singapore, Taipei, Jakarta and Manila were all well down.