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Asian markets’ rally fizzles as interest rates and inflation fears return – AFR

Asian markets fell mostly on Tuesday as investors struggled to sustain a recent rally as they weigh central banks raising interest rates to fight inflation and the possibility of a recession.

Renewed concerns about thinning supply and rising demand also helped push oil prices even higher after seeing a big bounce on Monday.

Stocks rallied last week as traders trimmed bets on how long CFOs will tighten monetary policy amid the prospect of a contraction, with some commentators eyeing possible cuts in late 2023.

But the global advance fizzled out in New York on Monday, and Asian investors ran out of steam on Tuesday.

Meanwhile, analysts said there was concern in stock markets that the upcoming earnings season could see many companies downsizing their forecasts for the coming year.

“Investors are clearly unconvinced as low trading volumes favor the notion of a depleted market with large declines seen this quarter, notwithstanding the outsized gains recorded last week,” said National Australia Bank’s Rodrigo Catril.

Hong Kong was among the big losers, with tech companies reversing the day’s gains, while there were also losses in Shanghai, Tokyo, Seoul, Singapore, Taipei, Jakarta and Wellington.

Sydney and Manila bucked the trend.

Another pledge by the central People’s Bank of China to support the world’s second-largest economy had little impact on sentiment.

Still, some commentators remain relatively optimistic as the second half of the year approaches.

Market strategist Louis Navelier said in a note: “While it’s sobering that the first half of the year was the worst since 1970, history also says that if the first half of the year is down at least 15 percent, the second half of the year is every time with an average return of 24 percent up.”

And Ben Laidler, a global market strategist at eToro, added that much of the expected economic weakness has been largely priced in by traders.

“Much is already being priced in by markets, which may be in ‘bad news is good news’ mode, as a slowdown cools inflation and interest rate fears,” he said.

“A ‘less bad’ gradual easing of inflationary risks is possible, as is a slowdown – not a recession – driving a ‘U-shaped’ recovery. Investors are focused on cheap and defensive assets while managing rising risks.”

Oil prices soared, building on a rally that has seen Brent and WTI gain more than eight percent since Wednesday. Both major contracts fell sharply earlier in the month on recession concerns.

The gains came on the back of a pick-up in demand from China, which is gradually emerging from lockdowns, while political crises in producers Libya and Ecuador fueled supply fears.

– Key figures at 0230 GMT –

Tokyo – Nikkei 225: down 0.2 percent at 26,830.69 (breakout)

Hong Kong – Hang Seng Index: down 0.8 percent at 22,046.66

Shanghai — Composite: down 0.4 percent at 3,366.48

West Texas Intermediate: up 1.1 percent to $110.72 a barrel

North Sea Brent Crude: up 1.1 percent to $116.39 a barrel

Dollar/Yen: DOWN at 135.25 yen from 135.48 yen on Monday

Euro/Dollar: DOWN at $1.0575 from $1.0583

Pound/dollar: DOWN at $1.2263 from $1.2268

Euro/Pound: DOWN at 86.22p from 86.24p

New York – Dow: down 0.2 percent at 31,438.26 (close)

London – FTSE 100: up 0.7 percent at 7,258.32 (close)

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