Central banks around the world are preparing to start — or in some cases have started — winding back the vast financial support put in place at the beginning of the pandemic, which has helped economies rebound and pushed equities to record or multi-year highs.
Soaring prices, supply chain snarls and a brewing energy crisis caused by the reopening from lockdowns have put increasing pressure on finance chiefs to act sooner than they had expected to prevent inflation from getting out of control.
And that has put a brake on a market rally that had lasted for a year and a half.
However, traders have refound some of their mojo this week as strong earnings from banking giants including JP Morgan Chase, Morgan Stanley, Bank of America and Citigroup fuel hopes for a standout round of reports.
Meanwhile, US figures showing new applications for unemployment benefits fell below 300,000 last week, for the first time since the pandemic started, provided fresh evidence for the recovery narrative.
The S&P 500 on Wall Street had its best day since March, while the Dow and Nasdaq also saw big gains.
Asia followed suit, with Tokyo up 1.8 percent and Taipei more than two percent higher. Shanghai, Sydney, Seoul, Singapore, Bangkok and Manila also rose.
Hong Kong jumped more than one percent, having reopened after two days off, though Jakarta and Wellington dipped.
London, Paris and Frankfurt all opened on a positive note.
Investors are now awaiting the Federal Reserve’s next move as it plots an exit from its vast bond-buying monetary easing programme, with next month or December seen as the beginning, while bets on an early-2022 interest rate hike are also building.
“We’re likely going to continue to see this elevated inflation and probably well into 2022,” Wealth Enhancement Group’s Nicole Webb said on Bloomberg Television, adding that she saw November as the likely beginning of tapering.
Her comments were echoed elsewhere, with analysts warning that inflation is not going to be a short-term issue, as many observers — as well as Fed officials — had suggested.
And markets analyst Louis Navellier added that broadly healthy jobs readings showed the Fed’s goal of taming unemployment had been achieved.
“I think it is safe to conclude that the Fed has completed its unemployment mandate and can now turn its attention to another mandate, namely fighting inflation,” he said in a note.
Expectations for tighter US policy pushed the dollar above 114 yen for the first time since late 2018.
Oil markets continued their march higher, with both main contracts enjoying strong buying on expectations for a pick-up in demand as economies reopen and producers maintain a cap on output.
And bitcoin jumped to within touching distance of $60,000 for the first time since May after a report said the US Securities and Exchange Commission was close to greenlighting the first futures exchange-traded fund for the unit.
The cryptocurrency has been on a rollercoaster ride since hitting a record near $65,000 in April before tanking on concerns about a clampdown in China and mixed messages from major investor and Tesla tycoon Elon Musk.
Key figures around 0720 GMT – Tokyo – Nikkei 225: UP 1.8 percent at 29,068.63 (close)
Hong Kong – Hang Seng Index: UP 1.2 percent at 25,254.61
Shanghai – Composite: UP 0.4 percent at 3,572.37 (close)
London – FTSE 100: UP 0.5 percent at 7,240.32
Dollar/yen: UP at 114.03 yen from 113.67 yen at 2040 GMT
Pound/dollar: UP at $1.3690 from $1.3674
Euro/dollar: UP at $1.1612 from $1.1601
Euro/pound: UP at 84.82 pence from 84.80 pence
West Texas Intermediate: UP 0.8 percent at $81.98 per barrel
Brent North Sea crude: UP 0.9 percent at $84.75 per barrel
New York – Dow: UP 1.6 percent at 34,912.56 (close)
J.P. MORGAN CHASE & CO
BANK OF AMERICA