Asian markets drifted Friday as a
broadly positive week drew to a close with investors pricing in the
likelihood that Federal Reserve officials will start withdrawing the vast
financial support put in place at the start of the pandemic.

The fast-spreading Delta virus variant, which is forcing governments to
introduce containment measures, and the Chinese government’s campaign to
tighten its grip on the world’s number two economy were also playing on
sentiment.

Data on Thursday showed US producer prices rose more than twice as much as
forecast on-month in July, while the annual rate hit a record, reinforcing
traders’ belief that the blockbuster economic recovery was putting huge
pressure on inflation.

The figures ramped up expectations the Fed, in a bid to prevent
overheating, will start reducing its colossal bond-buying programme earlier
than it had thought.

“Global investors are assessing the implications of the spread of the Delta
virus, the possible tapering by the Fed, and China’s clampdown,” said Geir
Lode, of Federated Hermes.

“With equity markets almost doubling since the start of the pandemic and a
bull market lasting over a decade, investors are questioning how far the bull
market can rally.”

“We therefore think that the inflation risk is on the upside and that the
Fed will start tapering at the end of the year,” he added.

However, while the ultra-cheap borrowing that has been key to propelling
the pandemic rally for more than a year looks likely to end, traders remain
broadly upbeat, with the Fed — and other central banks — likely to take
time withdrawing the support.

Traders will be keeping a hawk-like eye on Fed boss Jerome Powell’s speech
at this month’s gathering of central bank and finance leaders in Jackson
Hole, Wyoming, hoping for a hint at when he will act.

Wall Street’s three main indexes ended at record highs again Thursday, and
Asia fought to take up the baton.

After a weak start, Tokyo, Shanghai, Sydney, Wellington and Jakarta all
rose, though Hong Kong, Singapore, Seoul, Taipei and Manila fell.

Investors are keeping an eye on developments in China after officials said
they would put in place tougher anti-monopoly rules and penalties over the
next five years, as Beijing looks to tighten the screw further after a recent
crackdown on a range of industries.

Tech and private equity firms have already been caught in the crosshairs of
leaders, and a statement late Wednesday indicated finance, public health, and
food and drug manufacturing would also be targeted.

Crude prices extended their recent sell-off fuelled by concerns that the
Delta mutation that is coursing through the world would slam demand, with the
International Energy Agency warning as much in a report Thursday.

“The oil market will likely continue to maintain a nervous watch,
especially for a deterioration in China and the US,” Vandana Hari, of energy
consultant Vanda Insights, said, adding that the IEA report “validated fears
over a slowdown in second-half demand”.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: UP 0.1 percent at 28,043.01 (break)

Hong Kong – Hang Seng Index: DOWN 0.1 percent at 26,483.55

Shanghai – Composite: UP 0.3 percent at 3,535.02

Dollar/yen: DOWN at 110.40 yen from 110.43 yen at 2100 GMT

Pound/dollar: UP at $1.3815 from $1.3809

Euro/dollar: UP at $1.1740 from $1.1733

Euro/pound: UP at 84.98 pence from 84.94 pence

West Texas Intermediate: DOWN 0.7 percent at $68.60 per barrel

Brent North Sea crude: DOWN 0.7 percent at $70.83 per barrel

New York – Dow: UP less than 0.1 percent at 35,499.85 (close)

London – FTSE 100: DOWN 0.4 percent at 7,193.23 (close)