Asian markets struggled on Wednesday to erase some of the losses suffered earlier in the week as recession alarms continue to sound loud and oil struggled to erase the previous day’s sharp drop on rising demand fears.
The euro recovered slightly after reaching parity with the dollar for the first time in two decades, although it remains under pressure from growing concerns over an energy crisis across the euro zone and the European Central Bank’s slower pace of monetary tightening .
Traders are also awaiting the release of a number of key indicators this week, including the all-important CPI later on Wednesday, with expectations of a further climb to a fresh 41-year high.
Another big hike in prices will bolster the Federal Reserve’s determination to hike interest rates by 75 basis points in July for the second consecutive month, adding to fears officials are going too far and pushing the economy into recession.
Still, New York Life Investments’ Lauren Goodwin said policymakers are unlikely to back down from their dovish stance for the time being.
“There’s a general expectation that this will be a really strong push,” she told Bloomberg Television.
“Even if it doesn’t, I don’t think that will change the Fed’s perspective in a few weeks. We will not have enough evidence that inflation is turning convincingly.”
In another sign of the pressure being felt around the world by rising prices, South Korea’s central bank hiked interest rates by 0.5 percentage point on Wednesday, the first such hike since 1999.
While European markets enjoyed a rare bounce on bargain buying, all three major indices on Wall Street fell.
Asian stocks fluctuated with Tokyo, Hong Kong, Seoul, Wellington and Taipei slightly higher but Shanghai, Sydney, Singapore, Manila and Jakarta were down.
– Gas Crisis in Europe –
SPI Asset Management’s Stephen Innes said stocks could continue to struggle on the back of a perfect crisis storm engulfing trading floors.
“Typically, stock markets are relatively good at handling risk,” he said in a note. “But the current constellation of stubborn inflation, rapid Fed tightening, growth/recession risks and excessive interest rate volatility, to name a few, has left investors defenseless at times.
“And as the market converges on a bearish consensus, stocks are struggling to sustain a meaningful rally.”
Both major crude oil contracts were flat, staying below $100 and falling well short of recovering from more than 7 percent falls suffered on Tuesday, which were hurt by bets on a demand slump and fears of more Covid-19 lockdowns in Shanghai.
The commodity has lost much of the profits made after Vladimir Putin’s invasion of Ukraine, despite import bans from Russia.
Data from the American Petroleum Institute showed U.S. inventories rose by 4.76 million barrels over the past week, Bloomberg News reported, citing people familiar with the numbers, suggesting demand was still weak even during the important summer driving season subsides.
Joe Biden’s visit to Saudi Arabia on Friday will be closely watched as he tries to persuade the crude oil giant to pump more to lower prices.
In currency markets, the euro held just above $1.0 a day after hitting parity for the first time since late 2022 on Tuesday, with a deepening energy crisis stoking expectations that the euro zone will plunge into recession.
As Russian energy giant Gazprom begins 10-day maintenance work on its Nord Stream 1 pipeline on Monday, the bloc — and gas-dependent Germany in particular — is anxiously waiting to see if the taps are turned back on.
“A prolonged gas disruption would halt much economic activity and push (Germany) deep into recession,” National Australia Bank’s Tapas Strickland said.
He said July 21 – when the gas was supposed to be turned back on – was a crucial date.
“This date also happens to be the day of the next ECB meeting,” he added. “Each of these events is a key risk event. Russia is playing gas policy by not turning on the gas supply, which would likely send the euro much lower.”
– Key figures at 0250 GMT –
Tokyo – Nikkei 225: up 0.3 percent at 26,423.11 (breakthrough)
Hong Kong – Hang Seng Index: up 0.6 percent to 20,963.55
Shanghai – Composite: down 0.3 percent at 3,270.99
Euro/Dollar: DOWN at $1.0032 from $1.0037 on Tuesday
Pound/dollar: rise to $1.1893 from $1.1889
Euro/Pound: DOWN at 84.34p from 84.40p
Dollar/yen: up at 137.14 yen from 136.84 yen
West Texas Intermediate: FLAT at $95.80 a barrel
North Sea Brent Crude: FLAT at $99.52 a barrel
New York – Dow: down 0.6 percent at 30,981.33 (close)
London – FTSE 100: up 0.2 percent at 7,209.86 (close)
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