Daily Times

Asian investors trod a cautious path Tuesday, with surging inflation the key point of concern on trading floors, while eyes were also on a virtual summit between Joe Biden and Xi Jinping as they plot their way through a period of tension between the superpowers.

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.

Tuesday’s release of data on October retail sales will be closely followed for an idea about the impact of inflation on consumer appetite.

In early trade, 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.

Shanghai, Singapore, Seoul and Taipei also rose, though there were losses in Sydney, Wellington, Manila and Jakarta.

Traders are awaiting news on the talks between Biden and Xi, which saw the two sides looking for better communications with relations rocked by a series of crises including on Taiwan, human rights and trade.

“No major breakthroughs are expected, although the fact that both presidents are willing to talk to each other is good news,” said Rodrigo Catril at National Australia Bank.

“An ease in trade tensions is a potential outcome while issues around human rights, Taiwan and Covid are likely to remain unresolved.”

And OANDA’s Edward Moya added that while there were unlikely to be any major breakthroughs in the summit, “if Biden wants a win, he could ease up on some of the Trump tariffs that are still impacting the US consumer”.

Key figures around 0230 GMT

Tokyo – Nikkei 225: UP 0.2 percent at 29,841.26 (break)

Hong Kong – Hang Seng Index: UP 0.7 percent at 25,570.82

Shanghai – Composite: UP 0.2 percent at 3,541.77

Dollar/yen: UP at 114.22 yen from 114.12 yen at 2140 GMT

Euro/dollar: UP at $1.1380 from $1.1373

Pound/dollar: UP at $1.3428 from $1.3414

Euro/pound: DOWN at 84.74 pence from 84.76 pence

West Texas Intermediate: UP 0.7 percent at $81.46 per barrel

Brent North Sea crude: UP 0.9 percent at $82.76 per barrel

New York – Dow: DOWN less than 0.1 percent at 36,087.45 (close)

London – FTSE 100: UP 0.1 percent at 7,351.86 (close)