Hong Kong (AFP) – Asian markets fell on Monday as traders extended last week’s flight to risk assets on high expectations that the Federal Reserve will announce another outsized rate hike this week.
Investors are increasingly pessimistic about the outlook for the global economy with recent data showing that US inflation is rooted at a four-decade high.
Many observers have warned of a sharp recession in many countries, driven by the huge rate increases that are costing families.
And with uncertainty rife on a range of issues, including Russia’s war in Ukraine and China’s lockdown-related slowdown, stocks risk reviving the lows hit in June.
Several central banks are set to make rate announcements this week, with Japan and the UK being among the biggest, although the key event is Wednesday’s Fed decision.
There was hope that officials would take their foot off the pedal this month after two consecutive 75 basis point gains and weak economic data.
But last Tuesday’s disappointing CPI figure shocked traders, raising bets on a third straight rise of 75 points, while some had predicted a full percentage point move.
Policymakers, including Fed Chair Jerome Powell, have consistently stated that their ultimate goal is to get inflation under control, even if it means pushing the economy into recession.
“It is clear that the Fed will project a hawkish message and reiterate that it will unconditionally cut inflation,” said Vasileios Gkionakis of Citigroup.
Wall Street’s worst week since June ended on further losses after FedEx reported on Thursday that it had shipped fewer packages than expected due to weakness in the global economy over the summer.
This came as CEO Raj Subramaniam said he expected a global recession.
Asian equity investors continued selling on Monday.
Hong Kong shed more than a percent, even after reports from the city government, which was considering lifting hotel quarantine rules.
Shanghai was also devastated despite news that the megacity of Chengdu was ending a two-week Covid lockdown that has locked down 21 million people.
Sydney, Seoul, Singapore, Taipei, Manila and Wellington were also in the red. Tokyo was closed for a holiday.
The prospect of more big rate hikes by the Fed is also keeping the dollar at a decade-high against its key peers, with the yen feeling the most pressure as the Bank of Japan refuses to tighten monetary policy.
“Speculative selling of the yen is easily justified by the continued widening of US-Japan yield differentials,” said National Australia Bank’s Ray Attrill.
“Until or unless something happens to stem or reverse this spread widening, the yen is vulnerable to additional selling pressure.”
The Japanese unit hit a fresh 24-year low of 144.99 per dollar last week, although it rallied slightly after comments from BoJ officials signaled they were ready to step in for support.
Oil prices rose on the news from Chengdu, raising demand hopes, although gains were limited by growing fears of a recession around the world.
Key figures at 0230 GMT
Hong Kong – Hang Seng Index: FALSE, up 1.1 percent to 18,559.45
Shanghai – Composite: down 0.2 percent at 3,119.55
Tokyo – Nikkei 225: Closed for holidays
Pound/dollar: DOWN at $1.1400 from $1.1423 on Friday
Euro/Pound: UP at 87.70p from 87.00p
Euro/Dollar: DOWN at $1.0000 from $1.0018
Dollar/yen: up to 143.13 yen from 142.91 yen
West Texas Intermediate: up 0.8 percent to $85.79 a barrel
North Sea Brent Crude: up 0.9 percent to $92.17 a barrel
New York – Dow: down 0.5 percent at 30,822.42 (close)
London – FTSE 100: DOWN 0.6 at 7,236.68 (close)
© 2022 AFP