HONG KONG: Asian markets fell Monday as traders extended last week’s rout across risk assets, with expectations high that the Federal Reserve will this week announce another outsized interest rate hike.
With recent data showing US inflation rooted at four-decade highs, investors are increasingly pessimistic about the outlook for the global economy.
Many observers have warned of a sharp recession in many countries caused by the huge rate increases, which are hitting families in the pocket.
And with uncertainty rife owing to a range of issues, including Russia’s war in Ukraine and China’s lockdown-induced slowdown, equities are in danger of revisiting the lows they hit in June.
Several central banks are due to make rate announcements this week, with Japan and Britain among the biggest, though the main event is Wednesday’s Fed decision.
There had been a hope that after two 75 basis point increases in a row, and economic data showing weakness, officials would take their foot off the pedal this month.
Asian stocks open lower as all eyes on Fed decision next week
But last Tuesday’s disappointing consumer price figures shocked traders and ramped up bets for a third successive 75-point rise, while some have predicted a whole percentage point move.
Policymakers, including Fed boss Jerome Powell, have said time and again their ultimate aim is to bring inflation under control, even if that means sending the economy into recession.
“It is clear that the Fed will project hawkish messaging, once again reiterating that it will bring down inflation unconditionally,” said Vasileios Gkionakis at Citigroup.
Wall Street’s worst week since June ended with more losses after FedEx reported Thursday that it shipped fewer packages than expected over the summer owing to weakness in the global economy.
That came as CEO Raj Subramaniam said he expects a global recession.
Asian equity investors continued the selling on Monday.
Hong Kong lost more than one percent, even after reports of the city’s government considering ending hotel quarantine rules.
Shanghai was also down despite news that megacity Chengdu was ending a two-week Covid lockdown that saw 21 million people shut away.
Sydney, Seoul, Singapore, Taipei, Manila and Wellington were also in the red. Tokyo was closed for a holiday.
The prospect of more big Fed rate hikes is also keeping the dollar at multi-decade highs against its major peers, with the yen feeling most of the pressure as the Bank of Japan refuses to tighten policy.
“Speculative selling of the yen is readily justified by the ongoing widening in US-Japan yield differentials,” said Ray Attrill, of National Australia Bank.
“Until or unless something happens to arrest or reverse this spread widening, the yen is susceptible to additional selling pressure.”
The Japanese unit last week hit a fresh 24-year low of 144.99 to the dollar, though it has bounced slightly after comments from BoJ officials that signalled they were ready to intervene to provide support.
Oil prices rose on the news out of Chengdu, which lifted demand hopes, though the gains were capped by the growing fear of recession around the world.
Key figures at around 0230 GMT
Hong Kong - Hang Seng Index: DOWN 1.1 percent at 18,559.45
Tokyo - Nikkei 225: Closed for holiday
Pound/dollar: DOWN at $1.1400 from $1.1423 on Friday
Euro/pound: UP at 87.70 pence from 87.00 pence
Euro/dollar: DOWN at $1.0000 from $1.0018
Dollar/yen: UP at 143.13 yen from 142.91 yen
West Texas Intermediate: UP 0.8 percent at $85.79 per barrel
Brent North Sea crude: UP 0.9 percent at $92.17 per barrel
New York - Dow: DOWN 0.5 percent at 30,822.42 (close)
London - FTSE 100: DOWN 0.6 at 7,236.68 (close)
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