HONG KONG: Asian stocks mostly fell Tuesday, along with oil, on fears that central bank moves to fight inflation will spark a recession, while the euro fell towards parity with the dollar as energy and cost-of-living crises loom over the eurozone economy.
Worries about a fresh Covid flare-up in China – fuelling talk of another round of painful lockdowns – added to the downbeat mood comes, just as investors prepare for a big week of data and earnings that could have huge implications for markets.
Wall Street ended with more losses, with tech firms taking the brunt of the selling on expectations for an extended period of hefty interest rate hikes – the sector is particularly susceptible to higher borrowing costs.
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A forecast-beating US jobs report last week suggested the world’s top economy was coping with higher Federal Reserve rates, but it also gave the bank more room to continue lifting – leading to concerns it could go too far and cause a contraction.
“While the jobs report on Friday highlighted that the US is faring better than the rest in the race to avoid a recession, the rest of the world is sinking under the weight of a cost-of-living crisis and higher interest rates,” said OANDA’s Craig Erlam.
He added that a recent bounce in stocks had faded “and we now head into earnings season and another week of major economic reports fearful of what may lie ahead”.
In early Asian trade, Tokyo, Shanghai, Hong Kong, Seoul, Wellington, Taipei and Jakarta all fell, though Sydney and Singapore edged up.
Bets on a drop in demand caused by a possible recession also hit the crude market, with both main contracts extending Monday’s losses.
The Fed’s sharp rate hikes in recent months have sent the dollar soaring across the board, with the euro particularly under pressure as the European Central Bank moves more slowly in tightening monetary policy and as the region faces a severe energy crisis caused by the Ukraine war.
Sanctions on oil imports from Russia and Moscow’s warnings that it will shut off gas to Europe have led most analysts to predict the eurozone will fall into recession, and pushed the euro to a 20-year low and close to parity with the greenback.
But commentators said that even if the ECB lifted rates more quickly, that would simply add to the misery and economic pain.
While the single currency picked up slightly after hitting a low of $1.0006, there is a broad expectation that it is a matter of time before the $1.0000 level is breached.
Investors are also cautiously awaiting the upcoming corporate reporting season with the dollar in mind.
The currency’s strength will not only “affect this quarter’s earnings, but more likely it’s going to affect the revenue generation outlook for the next couple of quarters and that, I think, is a big problem”, Kimberly Forrest, of Bokeh Capital Partners, told Bloomberg Radio.
And markets strategist Louis Navellier added: “Earnings will be very revealing, the outlook for the second half (of the year) more so, as far as the state of consumer demand and the impact of inflationary pressures on profit margins and revenue growth.
“There is already early downward pressure with 71 S&P companies having already issued negative guidance versus outlook given in the first quarter earnings”, the highest since the final three months of 2019.
Key figures at around 0230 GMT
Tokyo - Nikkei 225: DOWN 1.7 percent at 26,362.76 (break)
Hong Kong - Hang Seng Index: DOWN 0.8 percent at 20,965.41
Shanghai - Composite: DOWN 0.2 percent at 3,307.96
Euro/dollar: DOWN at $1.0022 from $1.0041 on Monday
Euro/pound: DOWN at 84.34 pence from 84.38 pence
Dollar/yen: DOWN at 137.13 yen from 137.41 yen
West Texas Intermediate: DOWN 1.0 percent at $103.08 per barrel
Brent North Sea crude: DOWN 0.8percent at $106.25 per barrel
New York - Dow: DOWN 0.5 percent at 31,173.84 (close)
London - FTSE 100: UNCHANGED at 7,196.59 (close)