Asia Shares Skid As Fed Mulls Liquidity Control

Asian share markets slipped on Monday, Jan. 24, 2022, with the Federal Reserve expected to confirm it will soon start draining the massive liquidity that has fueled the huge gains in growth stocks in recent years, Wayne Cole reported for Reuters.

Photo Insert: Inside the Tokyo Stock Exchange

Adding to the caution were concerns about a possible Russian attack on Ukraine with the US State Department pulling out family members of its embassy staff in Kyiv. The New York Times reported President Joe Biden was considering sending thousands of US troops to NATO allies in Europe along with warships and aircraft.

MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.1% and Japan's Nikkei 1.0%. However, Wall Street futures were trying to bounce after last week's drubbing, with the S&P 500 futures up 0.4% and Nasdaq futures 0.7%.

Edgy markets are now even pricing in a small chance the Fed hikes rates this week, though the overwhelming expectation is for a first move to 0.25% in March and three more to 1.0% by year end.

"With inflation eye-wateringly high, the Fed is on course to steadily remove the ultra-accommodative monetary policy that has been a key prop to stock prices for over a decade now," said Oliver Allen, a market economist at Capital Economics.

The prospect of higher borrowing costs and more attractive bond yields took a toll on tech stocks with their lofty valuations, leaving the Nasdaq down 12% so far this year and the S&P 500 nearly 8%.

The rout was exacerbated by a slide in Netflix, which tumbled almost 22%, shedding $44 billion in market value.

Such was the scale of the losses that Treasuries actually rallied late last week on speculation the bonfire of market wealth might scare the Fed into being less hawkish, a variation of the old Greenspan put. However, Allen noted that even with the recent drop the S&P 500 was still 40% above where it ended 2019, and the Nasdaq 60%.

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