Pressure is building on the Federal Reserve to tighten monetary policy faster than expected as the economy recovers and inflation soars

Hong Kong (AFP) - Equity markets in Asia were mixed in edgy trade Thursday as a batch of strong economic data spurred expectations that the Federal Reserve will withdraw its vast financial support and lift interest rates earlier than thought.

A drop in jobless claims to a five-decade low, along with a surge in consumer income and spending, reinforced optimism that the United States is well on the recovery track – but added to pressure on the central bank to prevent overheating.

The readings came as minutes from the Fed’s November policy meeting showed officials were moving towards tapering their vast bond-buying programme – known as quantitative easing – at a faster pace as they try to tame rocketing prices.

While officials agreed to lower the number of bonds bought each month from the start of November, the minutes said that “some participants preferred a somewhat faster pace of reductions that would result in an earlier conclusion to net purchases”.

They added that the policy board would be prepared to “raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee’s objectives”.

Meanwhile, San Francisco Fed President Mary Daly – usually seen as a policy dove – is also coming around to the idea of a speedier withdrawal of stimulus. She said she was “leaning towards” a lift in borrowing costs, adding it “wouldn’t surprise me at all if it’s one or two by the latter part of next year”.

The surge in inflation around the world has led several central banks to tighten the policies put in place at the start of the pandemic that have been a key driver of the global recovery and market rally to record or multi-year highs in the past year and a half.

The latest strong US data do not “speak to an economy in need of the type of support the Fed is currently giving it and add weight to the concerns the Fed is behind the curve when it comes to monetary policy”, said Michael Hewson of CMC Markets.

The S&P 500 and Nasdaq closed Wednesday with healthy gains ahead of the Thanksgiving break.

But the Dow edged slightly lower, and Asia largely followed suit.

Tokyo led gains thanks to a rally in the dollar against the yen that helps exporters – while Wellington, Taipei and Jakarta also edged up.

Hong Kong, Sydney, Wellington, Taipei, Mumbai and Jakarta were up, though Shanghai, Singapore, Manila and Bangkok edged down.

Seoul was weighed by the South Korean central bank’s decision to lift interest rates for a second time.

London, Paris and Frankfurt all rose at the open.

“These minutes were hawkish,” Priya Misra, of TD Securities, said on Bloomberg Television. “The market has moved the timing of the first rate hike now to June of 2022 which implies this earlier end to QE is already priced in. The market is going to struggle until we get more data.”

Still, while markets are stuttering, some commentators remain upbeat about the direction going into next year.

“When looking forward to 2022 the market will see a true reopening from the pandemic after the last post-holiday surge, the end of the logistics bottlenecks, and further earnings growth,” said analyst Louis Navellier.

“Now is not the time to move to the sidelines. Get ready for a green December.”

- Key figures around 0820 GMT -

Tokyo - Nikkei 225: UP 0.7 percent at 29,499.28 (close)

Hong Kong - Hang Seng Index: UP 0.2 percent at 24,740.16 (close)

Shanghai - Composite: DOWN 0.2 percent at 3,584.18 (close)

London - FTSE 100: UP 0.1 percent at 7,296.48

Dollar/yen: DOWN at 115.36 yen from 115.41 yen at 2210 GMT

Euro/dollar: UP at $1.1218 from $1.1203

Euro/pound: UP at 84.06 pence from 84.02 pence

Pound/dollar: UP at $1.3345 from $1.3330

West Texas Intermediate: DOWN 0.3 percent at $78.16 per barrel

Brent North Sea crude: DOWN 0.1 percent at $82.14 per barrel

New York - Dow: FLAT at 35,804.38 (close)