Markets teetered on Monday as traders worried about a potential recession caused by the central bank raising interest rates to combat rising inflation.
Data showing a flare-up of new Covid-19 cases in China revived concerns over the government’s policy of locking down cities to eradicate the disease, despite the economic cost.
After the S&P 500’s worst January-June since 1970, Wall Street got off to a healthy start to the second half on Friday as a worse-than-expected US manufacturing result raised banks’ hopes of an extended period of monetary tightening.
This was followed by a loss of consumer confidence – a key driver of the world’s leading economy.
But Rodrigo Catril of the National Australia Bank said the Federal Reserve and other global finance leaders might not be reluctant to back off their rate hikes anytime soon as inflation remains stuck at multi-decade highs.
“While the data suggests the US economy is slowing, we don’t yet see any sign of inflationary pressures easing, an important difference as the Fed will continue its aggressive tightening approach until it sees evidence of the latter,” he said in a comment.
In a sign of the struggle officials will have to control soaring prices, figures showed that euro-zone inflation hit a record 8.6 percent in June. The European Central Bank is set to hike rates this month for the first time in more than a decade.
While rising prices remain a major concern, Pepperstone Group’s Chris Weston said the psychology is “shifting radically from inflation worries to one now where we are firmly focused on growth.”
While New York delivered a strong lead, Asia struggled.
Hong Kong fell as investors turned back from a long weekend to recoup Friday’s losses, while Seoul, Taipei, Bangok and Jakarta also fell.
However, Tokyo, Shanghai, Mumbai, Sydney, Singapore, Taipei and Wellington rose.
London, Paris and Frankfurt rose at the open despite US futures down.
A spike in new Covid cases in China over the weekend weighed on sentiment among investors who fear a return to the painful lockdowns in big cities like Shanghai that have hit the world’s second-largest economy.
The country recorded more than 700 new infections on Saturday and Sunday after staying under 50 a day for the past two weeks.
Macau saw its first two deaths from Covid over the weekend and authorities said they were considering a city-wide lockdown to combat the disease. The comments sent Hong Kong-listed shares in Macau casinos plummeting.
Oil prices edged up but fears of a recession weighed on sentiment as traders bet on a fall in demand, while the Asia boss of crude trading giant Vitol said he saw signs consumers were feeling the pressure from high commodity costs start.
“There is very clear evidence that high prices are causing economic stress, which some people call demand destruction,” said Mike Muller. It is “not just oil, but also liquefied natural gas”.
– Key figures around 0720 GMT –
Tokyo – Nikkei 225: up 0.8 percent at 26,153.81 (close)
Hong Kong – Hang Seng Index: down 0.2 percent at 21,825.32
Shanghai — Composite: up 0.5 percent to 3,405.43
London – FTSE 100: up 0.8 percent to 7,227.03
Dollar/yen: up 135.42 yen from 135.28 yen on Friday
Pound/dollar: DOWN at $1.2095 from $1.2098
Euro/Dollar: DOWN at $1.0423 from $1.0433
Euro/Pound: DOWN at 86.15p from 86.21p
West Texas Intermediate: up 0.4 percent to $108.85 a barrel
North Sea Brent Crude: up 0.5 percent to $112.15 a barrel
New York – Dow: up 1.1 percent at 31,097.26 (close)
— Bloomberg News contributed to this story —
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