Asian markets tumbled Tuesday on geopolitical fears after reports that House Speaker Nancy Pelosi would visit Taiwan fueled tensions between China and the United States.
Traders were already on edge after a series of data showed economies were beginning to be hit by rising inflation and central bank rate hikes aimed at taming prices.
A possible meeting between Pelosi and Taiwanese President Tsai Ing-wen is sure to anger Beijing, which considers the island its territory and has said the White House is “playing with fire”.
While observers don’t believe the move will spark a conflict, US officials said China is preparing possible military provocations that could include firing missiles in the Taiwan Strait or “large-scale” incursions into Taiwan’s airspace.
White House National Security Council spokesman John Kirby told reporters there was “no reason for Beijing to turn a potential visit into some sort of crisis, consistent with longstanding US policy.”
Still, the rise in tensions between the world’s two superpowers has sent shivers down stock markets and fueled fears that Russia’s invasion of Ukraine could escalate into a larger war.
Reports of the visit hit US stocks, with all three major indices reversing an early rally to end in negative territory.
Hong Kong and Shanghai led with losses of about 3 percent, while Taipei lost about 1.8 percent. Tokyo was down more than a percent, while Sydney, Seoul, Singapore, Wellington and Jakarta were also down significantly.
And in the currency markets, the safe-haven yen jumped to a two-month high against the dollar, and the Taiwan dollar fell 0.7 percent.
“The risk is increasing,” said Stephen Innes of SPI Asset Management.
“With Pelosi almost certainly going to visit Taiwan on Tuesday, it’s now in China’s hands to see if the situation escalates,” he said, adding that “it could be little more than a storm in a teapot, international and Taiwanese.” Investors are quite concerned.”
“Neither party wants a real war, but the risk of mishap or even an aggressive escalation of the war game is real, which could always lead to a tactical error.”
The flare-up in tensions comes less than a week after Biden and Xi Jinping held phone calls in which the Chinese president warned the United States not to “play with fire” over the island.
However, Ayako Yoshioka of the Wealth Enhancement Group told Bloomberg Radio the crisis could be another “short-term disruption” for investors, but “it’s always worrying when they happen.”
The market sell-off comes as investors try to assess the outlook for the global economy, while policymakers seek to lower inflation by raising interest rates while maintaining growth.
This week’s data showed the US economy was in a technical recession, China was hit by Covid lockdowns across the country and Europe was on the brink as an energy crisis caused by the Ukraine war exacerbated its own inflation problems.
Traders will be keeping a close eye on Friday’s US jobs data, which will provide fresh insights into the state of the economy, with a weak read giving the Fed some leeway to ease its rate hikes.
In oil markets, both major contracts extended Monday’s sell-off on falling demand expectations as the economy slows.
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: down 1.6 percent at 27,549.41 (breakout)
Hong Kong – Hang Seng Index: FALSE, up 3.1 percent to 19,551.19
Shanghai — Composite: WRONG, up 2.1 percent to 3,192.45
Taipei – TAIEX: down 1.9 percent at 14,700.48
Dollar/yen: up 130.67 yen from 131.61 yen on Monday
Euro/dollar: rise to $1.0272 from $1.0262
Pound/dollar: rise to $1.2259 from $1.2255
Euro/Pound: DOWN at 83.79p from 83.70p
West Texas Intermediate: FALSE, up 0.7 percent at $93.24 a barrel
North Sea Brent Crude: FALSE, up 0.8 percent to $00.19 a barrel
New York – Dow: down 0.1 percent at 32,798.40 (close)
London – FTSE 100: down 0.1 percent at 7,413.42 (close)
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