Most Asian markets fell again on Thursday as traders fear that sharp rate hikes to curb rising inflation will trigger a recession, although slight improvement in Chinese data provided some cheer.
Last week’s global recovery appears to have given way to nervousness about the economic outlook as the Ukraine war continues to sow uncertainty.
Rising inflation to multi-year highs has forced central banks to rapidly tighten pandemic-era monetary policies, dealing a severe blow to stocks, particularly tech companies that are vulnerable to higher borrowing costs.
The Federal Reserve has already hiked rates sharply and is expected to announce a second consecutive 75 basis point hike next month.
There was hope that policymakers would ease their rate hikes as the economy shows signs of slowing, but analysts say some officials are less concerned about a recession than that prices are spiraling out of control.
Fed Chair Jerome Powell admitted this month that the moves could lead to a contraction, suggesting he is not averse to it.
On Wednesday, Cleveland Fed Chair Loretta Mester said she was very keen that the federal funds rate would hit 3 to 3.5 percent this year and “a little over 4 percent next year.”
“There is a risk of a recession,” she told CNBC. “We are tightening monetary policy. My basic forecast is that growth will be slower this year.”
The threat of an extended period of elevated inflation and rate hikes has tired traders and pushed markets into the red.
While Wall Street ended Wednesday on a tepid note, it failed to recover from the previous day’s slump.
And Asia also struggled with Tokyo, Sydney, Seoul, Singapore, Taipei, Manila and Wellington.
– China supports hope –
However, Hong Kong and Shanghai gained. This comes after official figures showed an improvement in China’s services sector that beat forecasts thanks to the easing of painful Covid-19 restrictions in major cities like Shanghai and Beijing.
The purchasing managers’ index for the non-manufacturing sector rose to 54.7 points in June and was thus above the 50-point growth mark for the first time since February.
The manufacturing readout hit 50.2, which was also the first time growth since February and gave some hope that the world’s second largest economy might be picking up again after the pain caused by lockdowns.
“As the domestic epidemic prevention and control situation continued to improve and a package of measures … to stabilize the economy was implemented faster, the overall recovery of our country’s economy has accelerated,” said Zhao Qinghe, a statistician with the National Bureau of Statistics.
And Stephen Innes, strategist at SPI Asset Management, added that the government and the People’s Bank of China may now have some leeway to support growth.
“With (consumer price) inflation in China low compared to its peers, there is plenty of scope for monetary and fiscal conditions to ease in the second half of the year, which supports activity,” he said in a note.
Crude oil faltered after falling on Wednesday, as data showed demand in the United States appeared to be slowing even as the driving season started, amid recession fears.
“The higher price environment seems to be doing its job when it comes to demand,” said Warren Patterson of ING Groep NV.
The drop comes as OPEC and other big producers, including Russia, prepare to meet on their production deal, with most predicting they’re unlikely to open the taps any further.
“I don’t expect any surprises from the group. I would imagine it’s going to be a pretty quick meeting,” Patterson said.
– Key figures at 0300 GMT –
Tokyo – Nikkei 225: down 0.9 percent at 26,561.05 (breakout)
Hong Kong – Hang Seng Index: up 0.3 percent to 22,048.60
Shanghai — Composite: up 0.8 percent to 3,387.96
West Texas Intermediate: up 0.2 percent to $109.95 a barrel
North Sea Brent Crude: FALSE, up 0.4 percent at $115.77 a barrel
Dollar/Yen: DOWN at 136.56 yen from 136.66 yen on Wednesday
Euro/dollar: rise to $1.0456 from $1.0444
Pound/dollar: rise to $1.2139 from $1.2119
Euro/Pound: DOWN at 86.13p from 86.15p
New York – Dow: up 0.3 percent at 31,029.31 (close)
London – FTSE 100: down 0.2 percent at 7,312.32 (close)
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