Most Asian markets rebounded Tuesday
from the previous day’s sell-off as concerns about the pace of expected
Federal Reserve monetary tightening eased, while oil prices pushed to new
two-year highs above $75 on demand optimism.

Regional investors were sent scurrying Monday as they contemplated the US
central bank’s latest projections for hiking interest rates in light of the
country’s blockbuster economic recovery and sharp spike in inflation.

The Fed’s “dot plot” forecast indicated liftoff in 2023 — a year earlier
than first flagged — with some policymakers eyeing the end of 2022, while
discussions on winding down its vast bond-buying programme are likely in the
next few months.

Ultra-loose monetary policy by the Fed and other central banks, along with
massive government spending, have been key pillars of the rally across global
equities enjoyed since their nadir in April last year.

Observers said sharp losses in New York on Friday were largely reversed at
the start of this week as traders may have felt they had oversold, with the
general consensus still that the world economy is well on the recovery track
and accommodative policies will remain in place for the time being.

“The bigger picture is that the Fed is just beginning to adjust its policy
stance,” Chris Iggo, at AXA Investment Managers, said. “The overall level of
rates and liquidity should stay supportive for markets, but maybe less so
than has been the case over the last year.”

In early trade, Tokyo led gains, rallying nearly three percent by lunch,
having lost more than that on Monday, while Sydney was up more than one
percent. Hong Kong, Shanghai, Seoul, Taipei, Wellington, Manila and Jakarta
also rose, though Singapore struggled.

Analysts said there was a lower level of angst on trading floors after
less hawkish comments from a number of Fed policymakers.

Dallas Fed boss Robert Kaplan said he was keen on taking “our foot gently
off the accelerator sooner rather than later” so as not to be forced into a
sharp move down the line, while St Louis Fed chief James Bullard referred to
taper talk taking place over several meetings, suggesting no imminent move.

And John Williams, head of the New York Fed, said he thought the inflation
spike was largely down to the rebound in economic activity and should abate
over time.

The head of the central bank, Jerome Powell, is due to appear before a
congressional panel later Tuesday.

“Markets have now had time to reassess Fed rhetoric, encouraged by more
toned-down rhetoric from even the most hawkish Fed officials,” said Tapas
Strickland of National Australia Bank.

He added that the European Central Bank’s rhetoric “also suggests it won’t
become hawkish anytime soon with a strategy review to be unveiled by
September’s ECB Forum”.

Brent crude prices broke $75 for the first time since April 2019 as
investors eye a surge in demand for the commodity as the global economy
reopens, with strong rebounds in the United States, Europe and China major
catalysts.

“Demand optimism is now well established and a tightening of the market is
very much in the spotlight,” Vandana Hari, of Vanda Insights, said. “If there
is a pause in this rally, it will likely come from the supply side.”