Stocks in Asia were mixed on Friday as rising inflation and a string of rate hikes around the world further fueled recession fears, while a major outage in Chinese growth added to concerns about the world’s largest economies.
The underperforming earnings of Wall Street titans JP Morgan and Morgan Stanley fueled fears that corporate profits would be hurt by the economic fallout from a range of problems, including rising prices, tightening monetary policy and the war in Ukraine.
Following rate hikes by a number of countries this week, investors are expecting the Federal Reserve to hike rates by 75 basis points this month as officials struggle to contain decades-long inflation, though some observers suspect a move around one Percentage could be forthcoming the cards.
The latest outsized US inflationary pressures this week – caused by a surge in energy prices – followed last Friday’s news that job creation remained strong in June, giving the Fed room to ramp up its campaign to extract cash from the financial system to suck.
But while experts warn that raising interest rates too much could hurt the economy, the bank has made it clear that its top priority is to cut prices.
This has sent the dollar higher across the board, and Standard Chartered Bank’s Steve Englander warned that there was no end in sight to the unit’s advance.
The currency’s strength is “largely a flight to safety,” he told Bloomberg TV.
“The problem is, until we see some light at the end of the tunnel, either in terms of inflation or the price of oil declining due to the creation of supply and not the destruction of demand, it’s difficult to pinpoint a spike.”
As investors increasingly price in a recession over the next year, stocks are struggling to see bullish momentum.
Wall Street’s three main indices fell for the most part, with sentiment weighed on by disappointing reports from JPMorgan Chase & Co. and Morgan Stanley. They will be followed in the next few days by Citigroup, Goldman Sachs and Bank of America.
In early Asian trade, Hong Kong slumped and mainland China markets faltered after data showed China’s economy grew just 0.4 percent in the second quarter as it was battered by Covid lockdowns in major cities like Shanghai and Beijing.
The reading was well below the 1.6 percent predicted by analysts in an AFP poll, although there are hopes it will give authorities fresh impetus to unveil new stimulus measures.
Elsewhere, Tokyo, Singapore, Seoul and Taipei rose, but Sydney, Wellington, Manila and Jakarta fell.
In currency markets, the euro continues to fluctuate around parity with the greenback, while the European Central Bank grapples with a number of issues, including an energy crisis amid fears Russia will cut gas supplies in retaliation for war sanctions on Ukraine.
In the meantime, policymakers have yet to hike rates — leaving the bank far behind the Fed — amid concerns about the huge disparities, or “fragmentation,” between individual euro-zone government bond rates.
In addition, there is a new political upheaval in Italy, the government there is on the brink of collapse.
“Faced with a weak currency, sky-high inflation, risk of recession due to the energy crisis and political turmoil in Italy, the ECB faces an impossible mission to solve all of its problems simultaneously with monetary policy,” said Stephen Innes of SPI Asset Management.
“Pulling forward a 50 basis point hike and uncovering a solid anti-fragmentation tool seems like the optimal solution for the central bank…but that’s probably not enough to support a sustained euro recovery.”
Traders are eyeing the Middle East as Biden tours the region, with his visit to Riyadh later in the day taking center stage as he tries to persuade the kingdom to cut crude prices by pumping more.
While both major contracts have fallen below $100 in recent weeks on demand fears over a potential recession, there is disagreement over the outlook for the market, with some predicting it to rally to new highs and others warning that it may rise to new highs could fall $65.
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: up 0.6 percent to 26,797.47 (breakthrough)
Hong Kong – Hang Seng Index: down 0.5 percent at 20638.71
Shanghai — Composite: up 0.2 percent to 3,287.59
Euro/Dollar: UP at $1.0033 from $1.0022 on Thursday
Pound/dollar: rise to $1.1839 from $1.1826
Euro/Pound: UP at 84.75p from 84.72p
Dollar/Yen: DOWN at 138.91 yen from 138.93 yen
West Texas Intermediate: up 0.3 percent to $96.08 a barrel
North Sea Brent Crude: up 0.4 percent to $99.50 a barrel
New York – Dow: down 0.5 percent at 30,630.17 (close)
London – FTSE 100: down 1.6 percent at 7,039.81 (close)
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