Asian markets struggled again on Friday after another Wall Street sell-off fueled by recession fears, with warnings of a bleak outlook for the global economy as central banks slam on the brakes to fight rising inflation.
Data showing that US consumers – the backbone of the world’s leading economy – were becoming increasingly cautious about spending dealt a fresh blow to stocks on Thursday, with the S&P 500 suffering its worst January-June since 1970.
As the war in Ukraine shows no end and energy costs remain high, borrowing costs are expected to continue to rise, pushing economies into recession.
“If anyone thinks stocks could go up by the end of the year, they’re assuming that the Fed will drop its entire focus on price stability and back away from it,” said Seema Shah of Principal Global Investors. said Bloomberg Television.
“We see it very differently. We think it will be quite difficult.”
After a broad pullback in Asia on Thursday, markets struggled to recover but with little conviction.
Tokyo, Shanghai, Seoul, Taipei and Bangkok all fell, although there were small gains in Sydney, Singapore, Manila and Jakarta.
Hong Kong was closed for a public holiday.
Losses in global markets this week follow a rally last week, fueled by hopes that an economic slowdown or signs of a recession would prompt central banks to ease their efforts to tighten monetary policy.
But comments from top finance chiefs, including Federal Reserve Chair Jerome Powell, suggest they are willing to endure the pain of a contraction as long as they can rein in prices — the fastest in 40 years climb.
“As central banks increasingly accept that monetary tightening is impossible without economic damage, the market narrative has turned 180 degrees this week,” said Stephen Innes of SPI Asset Management.
He added that sharp rate hikes by the Fed and other central banks would be brought forward in hopes inflation will ease sooner and allow them to cut borrowing costs faster.
“The hope is that by November’s midterm elections, when the economy has cooled sufficiently, it will be possible to pause further rate hikes, or at least slow them down significantly for investors to enjoy a Santa Claus rally; otherwise it could become a winter of dissatisfaction,” Innes said.
However, market strategist Louis Navellier hinted that the economic situation is not as bad as feared.
“The amazing thing is that we are not in an ‘earnings recession’ and the analyst community remains largely positive,” he said in a note.
“Frankly, the analyst community is smarter than the macro strategists who keep calling for a recession. The bottom line is that fear is selling as negative news continues to overwhelm positive analyst commentary.”
Oil prices rose but still headed for a third consecutive week of losses amid fears a recession could hurt demand.
This has overshadowed a tight market caused by sanctions against Russia over its invasion of Ukraine and an expected surge in demand from China as it emerges from its Covid lockdowns.
Innes added: “As energy bulls have had a good run this year, investors seem more inclined to take money off the table as the energy crisis moves into the global recession amid rising uncertainty.
“As the saying goes, high prices are the best cure for high prices.”
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: down 0.9 percent at 26,159.53 (breakout)
Shanghai — Composite: DOWN percent at 3,394.99
Hong Kong – Hang Seng Index: Closed for public holiday
West Texas Intermediate: up 0.5 percent to $106.26 a barrel
North Sea Brent Crude: up 0.6 percent to $119.66 a barrel
Dollar/Yen: DOWN at 135.32 yen from 135.75 yen on Thursday
Euro/Dollar: DOWN at $1.0465 from $1.0487
Pound/dollar: DOWN at $1.2144 from $1.2177
Euro/pound: up to 86.18p from 86.08p
New York – Dow: down 0.8 percent at 30,775.43 (close)
London – FTSE 100: down 2.0 percent at 7,169.28 (close)
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