HONG KONG: Asian markets sank Monday as forecast-beating US jobs data fanned expectations for another big Federal Reserve interest rate hike, while traders are now focusing on an upcoming inflation report.
A brief rally across trading floors last week gave way to gloom as investors grow increasingly worried that central bank efforts to tame runaway prices will plunge the global economy into recession.
Adding to the stress is the upcoming corporate earnings season, which many fear will show that companies are feeling the pain of tightening monetary policies.
All three main indexes tumbled Friday – with the Nasdaq off almost four percent – following news that a net 263,000 US jobs were created in September.
While that was down from August it was more than expected and showed that the labour market remained robust and highlighted the tough job Fed officials face in their battle against four-decade-high inflation.
With the spotlight on a consumer price index reading later in the week, policymakers continue to take a hawkish tone, warning they will not ease up on their rate hikes even if that means causing a recession.
“The real question for the market is whether one step down in core CPI will be enough to change the tone around inflation,” said SPI Asset Management’s Stephen Innes.
Asian markets drift as global rally peters, focus now on US jobs
“Given the sharp increase in cross-asset correlations and breakdown in risk assets, it seems like that would be too much to hope for.”
Asia tracked the US losses, with Hong Kong down more than two percent, while there was also hefty selling in Sydney, Singapore, Manila, Jakarta and Wellington.
Shanghai dropped as traders returned from a weeklong holiday, with rising Covid numbers in the country leading to worries of more economically painful lockdowns ahead of a key Communist Party gathering.
Tokyo, Seoul and Taipei were closed.
Innes added that there was also nervousness about earnings.
“Unlike June, where earnings were poised to beat expectations, investors are biased towards hitting the sell button as concern around lagged effects of tightening hitting bottom lines now permeate expectations,” he said in a note.
The prospect of higher US borrowing costs sent the dollar rallying Friday and it held most of those gains in early Asian trade.
Investors are keeping an eye on the yen, which is edging back to the lows touched last month when the government stepped in with a massive cash injection to support the currency.
Oil prices edged down after seeing their biggest weekly gain since March in reaction to a decision by OPEC and other major producers led by Russia to cut output by two million barrels a day.
The drop Monday came on demand concerns caused by China’s Covid flare-ups and more weak data out of Beijing caused by recent lockdowns.
“A slew of weak macroeconomic data that China has released shows that there is very limited room for an economic rebound in the short term, which is hard to provide support for earnings and market confidence,” Shen Meng, at investment bank Chanson & Co in Beijing, said.
Key figures around 0230 GMT
Hong Kong - Hang Seng Index: DOWN 2.4 percent at 17,316.13
Shanghai - Composite: DOWN 0.7 percent at 3,003.77
Tokyo - Nikkei 225: Closed for a holiday
Euro/dollar: UP at $0.9747 from $0.9743
Euro/pound: DOWN at 87.79 pence from 87.97 pence
Dollar/yen: UP at 145.43 yen from 145.38 yen
West Texas Intermediate: DOWN 0.5 percent at $92.19 per barrel
Brent North Sea crude: DOWN 0.5 percent at $97.47 per barrel
New York - Dow: DOWN 2.1 percent at 29,296.79 (close)
London - FTSE 100: DOWN 0.1 percent at 6,991.09 (close)