HONG KONF (AFP, BLOOMBERG) - Asian markets turned lower on Thursday (April 6), tracking a sell-off on Wall Street as investors were spooked by Federal Reserve minutes showing it is mulling a plan to tighten monetary policy by sucking cash out of the financial system.
New York's three main indexes turned lower on news that central bank policymakers were considering stopping, or at least slowing, the policy of reinvesting the income received from its US$4.5 trillion-worth of Treasury bills and other assets.
Because the Fed's involvement in the bond market helps suppress interest rates, its decision to leave it would reduce the amount of cash in the system.
The report overshadowed data showing a better-than-forecast jump in private-sector hiring, days ahead of closely watched jobs figures from the government.
"This is huge news for traders in fixed interest and global markets more broadly. It means that a source of demand in US fixed interest markets is going to be reduced," said Greg McKenna, chief market strategist at AxiTrader, in a note.
"Maybe not today, maybe not tomorrow but taking the Fed out of the bond market will reverberate across global financial markets," he said.
Experts said the bank's decision to flag the move may have been to prepare markets in advance, in a bid to avoid the so-called "taper tantrum" of 2013 that hit stocks after the Fed's decision to cut back its monetary easing programme.
The minutes of the March meeting - in which the bank hiked interest rates - also showed policy board members saw "considerable uncertainty" about the effects Donald Trump's pledged tax-cut and infrastructure spending stimulus would have on the US economy.
The tycoon's promises helped fuel a four-month surge across global markets but that faltered in March after his failure to push through a key healthcare bill raised concerns about the chances for the rest of his agenda.
Tokyo ended the morning 1.40 per cent lower, with the US dollar retreating against the yen as traders bet the minutes suggested the Fed's need to raise interest rates had been dampened.
Hong Kong lost 0.6 per cent, Shanghai shed 0.1 per cent and Sydney fell 0.7 per cent while Seoul lost 0.6 per cent and Singapore 0.5 per cent.
Investors were already nervous ahead of a two-day summit between US President Donald Trump and his Chinese counterpart Xi Jinping that begins Thursday.
The meeting comes after Trump's long-running criticism of China's trade policy - which he says is unfair to the US - and accusations it is a currency manipulator.
Investors also remain focused on health care and tax policy in Washington, with House Speaker Paul Ryan saying on Wednesday that the chances for a vote on a revised repeal of Obamacare this week were dwindling.
"Paul Ryan did not help by highlighting that tax reform may require more time than health care to overhaul, adding pressure on equity markets," IG Asia market strategist Jingyi Pan wrote in a note.