HONG KONG: Asian markets fell Thursday as a rally in oil ramped up inflation fears, with top officials warning of more pain to come as the Ukraine war continues to push prices up and put further pressure on the global economy.

Buyers on Wall Street were in retreat again after data showed US crude and gasoline stockpiles sank, just as the summer driving season begins and leading OPEC member demand would surge further as China reopens.

Adding to the gloom was the OECD’s sharp downward revision of its global growth outlook and doubling of its inflation forecast.

The glum mood was only slightly offset by ongoing optimism that Beijing’s tech crackdown was close to an end.

Both main crude contracts jumped more than two percent Wednesday to three month highs after figures showed the biggest US storage depot had seen a big fall in reserves last week, suggesting elevated prices were not deterring people from driving.

Meanwhile, White House Press Secretary Karine Jean-Pierre said officials expect Friday’s keenly awaited consumer price index will be “elevated”.

Asian markets track Wall St rally, boosted by China hopes

The comment lifted expectations that the Federal Reserve will stick to its hawkish path and hike interest rates by half a point for at least three more meetings this year as it tries to bring down inflation from four-decade highs.

Analysts said investors were unlikely to get any reprieve until crude – a key driver of inflation since Russia’s invasion of Ukraine – was brought under control.

“A pullback in crude would be crucial for any prolonged risk rally, given implications for inflation expectations,” said SPI Asset Management’s Stephen Innes.

“And for the central bank fraternity intent on frontloading rates, chapter two of the current playbook reads that aggressive tightening risks a material decline in housing, consumer confidence, and consumption that will eventually drive their respective economies into recession and send stocks tumbling.

“So until we reach peak inflation, which will trigger a less hawkish Fed and lower recession odds, it could be a gloomy summer for global stock pickers.”

He added that prices were expected to rise further for now as China emerges from months of lockdown, a sentiment that United Arab Emirates Energy Minister Suhail Al-Mazrouei agreed with.

“With the pace of consumption we have, we are nowhere near the peak because China is not back yet,” he told a conference Wednesday. “China will come with more consumption.”

The unease about rising prices and rates saw all three main indexes on Wall Street drop along with European markets, with focus on the European Central Bank’s policy meeting later Thursday.

The ECB is expected to begin winding down its massive bond-buying programme and signal a rate hike was in the pipeline.

Asian traders followed suit Thursday.

Hong Kong dropped, even as tech firms continued to benefit from hopes that China’s crackdown was almost over, while Shanghai, Sydney, Seoul, Singapore, Taipei, Manila and Wellington were also in the red.

Tokyo, however, edged up as the yen sat at two-decade lows owing to widening the monetary policies of the hawkish United States and Japan, which shows no signs of lifting rates.

Investors were jarred by a report from the Organisation for Economic Co-operation and Development, which said it had cut its 2022 growth outlook to three percent – from 4.5 percent predicted in December – owing to the Ukraine war.

It also doubled its inflation estimate to 8.5 percent, a 34-year high.

“The world is set to pay a hefty price for Russia’s war against Ukraine,” wrote the OECD’s chief economist and deputy secretary-general, Laurence Boone.

And Anna Han, at Wells Fargo Securities, told Bloomberg Television: “Our view is that the chance of recession by the end of 2023 is 40 percent or so.”

Key figures at around 0230 GMT

Tokyo - Nikkei 225: UP 0.2 percent at 28,278.45 (break)

Hong Kong - Hang Seng Index: DOWN 0.7 percent at 21,851.49

Shanghai - Composite: DOWN 0.6 percent at 3,245.66

Brent North Sea crude: UP 0.1 percent at $123.72 per barrel

West Texas Intermediate: UP 0.1 percent at $122.20 per barrel

Dollar/yen: UP at 134.36 yen from 134.29 yen late Tuesday

Euro/dollar: DOWN at $1.0717 from $1.0720

Pound/dollar: DOWN at $1.2524 from $1.2535

Euro/pound: UP at 85.57 pence from 85.54 pence

New York - Dow: DOWN 0.8 percent to 32,910.90 (close)

London - FTSE 100: DOWN 0.1 percent at 7,593.00 (close)