Fears of a recession, prompted by sharp hikes in interest rates to combat rising inflation, sent Asian markets tumbling on Wednesday, trailing a sharp decline in Wall Street.
The sharp selling came after more than a week of global gains, prompted by hopes that any signs of contraction could give central banks room to slow their pace of monetary tightening.
The volatility on the trading floors shows how difficult it has become for investors to gain a foothold as fiscal officials struggle to strike a balance between containing prices and sustaining economic growth.
Wednesday’s selling came after New York’s three main indices fell to their lowest levels in more than a year in response to data showing US consumer confidence – which is a crucial engine of the world’s leading economy.
The sentiment-boosting reading was driven in part by a sentiment that inflation would persist, suggesting consumers are unsure whether the Federal Reserve’s aggressive efforts to tame inflation will work.
The news overshadowed a surprise move by China to reduce the quarantine period for inbound travelers and sparked hopes of further lockdowns that could allow the country’s huge economy to recover faster.
In early Asian trade, Hong Kong, Tokyo, Shanghai, Sydney, Seoul, Taipei, Jakarta and Wellington were all well down.
Fed officials tried to downplay the chances of a recession on Tuesday, with Fed chiefs in San Francisco and New York saying they were optimistic a soft landing could be achieved.
“I see us slamming on the brakes to slow down to a more sustainable pace instead of slamming on the brakes, going over the bars and experiencing the proverbial recession,” San Francisco’s Mary Daly said at a LinkedIn hosted event online event.
“It wouldn’t surprise me, and it’s even in my forecast, that growth will slip below 2 percent, but it’s not really going to turn negative for long.”
– Threading a fine line –
Analysts were more skeptical, however, with Bank of Singapore’s Sim Moh Siong saying “low US consumer expectations point to weaker growth in (the second half of 2022) as well as a growing risk of recession by year-end.”
Conference Board chief economist Dana Peterson warned that the United States is likely to experience a recession in late 2022.
And State Street Corp’s Emily Weis said: “The Fed still believes it can walk that very fine line between tightening financial conditions without damaging the economy too much.
“We’re still not sure if they can pull this off. We’ve seen that in the markets for the last month or so.”
Oil prices fell but remained elevated after expectations in recent days that demand will continue to rise – despite recession talks – and that supplies will remain tight due to the import ban from Russia.
And while G7 leaders agreed to work on a price cap for Russian oil to cut Kremlin revenues, observers warned it is unlikely to have a massive impact on prices.
“Easing of China’s zero-Covid policy helped oil to its third day of gains after a decent correction in recent weeks,” said OANDA’s Craig Erlam.
“As are reports that the UAE and Saudi Arabia are producing near capacity, in stark contrast to claims that both are holding back and could do more.”
He added that OPEC and other big producers were 2.7 million barrels a day below target in May, “bringing the overall gap under the agreement to more than half a billion.”
“Even lifting the sanctions on Iran and Venezuela cannot do much against this background. It may well take a recession to bring oil prices back to sustainable levels in the foreseeable future,” he warned.
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: down 1.1 percent at 26,759.99 (breakout)
Hong Kong – Hang Seng Index: down 0.9 percent at 22,205.99
Shanghai – Composite: down 0.1 percent at 3,404.32
Dollar/Yen: DOWN at 136.10 yen from 136.20 yen on Friday
Pound/dollar: rise to $1.2207 from $1.2187
Euro/dollar: rise to $1.0531 from $1.0525
Euro/Pound: DOWN at 86.26p from 86.32p
West Texas Intermediate: FALSE, up 0.5 percent at $111.24 a barrel
North Sea Brent Crude: FALSE, up 0.6 percent at $117.25 a barrel
New York – Dow: 1.6 percent down at 30,946.99 (close)
London – FTSE 100: up 0.9 percent at 7,323.41 (close)
#Asian #market #losses #due #recession #fears #inflation
