Asian stocks fell along with oil on Tuesday, largely on fears that central bank action to fight inflation would trigger a recession, while the euro fell towards parity with the dollar as energy and cost-of-living crises loom over the euro-zone economy.
Concerns over a renewed flare-up of Covid-19 in China – fueling talk of another round of painful lockdowns – are adding to the somber mood just as investors brace for a big week of data and earnings that will have a huge impact on markets could.
Wall Street ended with more losses, with technology companies bearing the brunt of the selling on expectations of an extended period of sharp rate hikes – the sector is particularly vulnerable to higher borrowing costs.
A better-than-expected US jobs report last week suggested the world’s leading economy could cope with higher interest rates from the US Federal Reserve, but it also gave the bank more leeway to continue hiking – raising concerns that it could go too far and cause a decline.
“While Friday’s jobs report highlighted that the US is doing better than the rest in the race to avoid a recession, the rest of the world is sinking under the weight of a cost-of-living crisis and higher interest rates,” he told OANDA’s Craig Erlam.
He added that a recent upleg in equities has faded, “and we now move into earnings season and another week of major economic reports on fear of what may lie ahead.”
In early Asian trade, Tokyo, Shanghai, Hong Kong, Seoul, Wellington, Taipei and Jakarta fell, although Sydney and Singapore edged higher.
Bets on a demand slump caused by a possible recession also hit the crude oil market, with both major contracts extending Monday’s losses.
The Fed’s sharp rate hikes in recent months have sent the dollar higher across the board, with the euro under particular pressure as the European Central Bank tightens monetary policy at a slower pace and the region faces a severe energy crisis fueled by the war was caused in Ukraine.
Sanctions on oil imports from Russia and Moscow’s warnings that it will shut off gas to Europe have led most analysts to predict the euro zone will fall into recession, sending the euro to a 20-year low and close to it Parity with the greenback depressed.
But commentators said even if the ECB hiked rates faster, it would only add to the misery and economic pain.
While the single currency recovered slightly after hitting a low of $1.0006, it is widely expected that it is only a matter of time before the $1.0000 level is breached.
With a view to the dollar, investors are also cautiously awaiting the upcoming corporate reporting season.
The currency’s strength will not only “influence this quarter’s earnings, but more likely influence the revenue generation outlook for the next few quarters, and that’s a big concern in my opinion,” Kimberly Forrest of Bokeh Capital Partners told Bloomberg radio.
And market strategist Louis Navellier added: “Earnings will be very telling, the outlook for the second half (of the year) even more so, on the state of consumer demand and the impact of inflationary pressures on profit margins and sales growth.
“There is early downward pressure already as 71 S&P companies have already issued negative guidance versus outlook in first-quarter earnings,” the highest since the last three months of 2019.
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: down 1.7 percent at 26,362.76 (breakout)
Hong Kong – Hang Seng Index: down 0.8 percent at 20,965.41
Shanghai — Composite: down 0.2 percent at 3,307.96
Euro/Dollar: DOWN at $1.0022 from $1.0041 on Monday
Pound/dollar: DOWN at $1.1883 from $1.1892
Euro/Pound: DOWN at 84.34p from 84.38p
Dollar/Yen: DOWN at 137.13 yen from 137.41 yen
West Texas Intermediate: FALSE, up 1.0 percent to $103.08 a barrel
North Sea Brent Crude: FALSE, up 0.8 percent at $106.25 a barrel
New York – Dow: down 0.5 percent at 31,173.84 (close)
London – FTSE 100: STEADY at 7,196.59 (close)
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