Asian Stocks Dip as Rate Hikes, Recession Threat Loom

 

Asian equities rolled back on Tuesday as traders prepared themselves for interest rate hikes in the US as the global economy struggles with inflation and faces the threat of recession.

Soaring prices, China’s tough Covid lockdowns, monetary policy tightening and the ongoing conflict in Ukraine have all combined to pull the rug from under investors.

This week, traders will be waiting for the conclusion on Wednesday of the US Federal Reserve’s two-day policy meeting, where it is expected to lift borrowing costs 0.5 percentage points for the first time since 2000.

 

Also on AF: Alibaba Shares Rebound After Report of Action Against Ma

 

Hong Kong stocks ended with small gains – the Hang Seng Index edging up 0.06%, or 12.5 points, to 21,101.89 – as traders tracked a positive lead from Wall Street.

Earlier in the day, there were sharp losses as Alibaba shares fell over 9% on worries over the status of its billionaire founder Jack Ma. A state media report that Chinese authorities had taken action against a person surnamed Ma hit the stock hard, but it recouped losses after the report was revised to make clear it was not the company’s founder.

Mainland Chinese markets were closed for a public holiday.

Financial markets in India, Indonesia, Japan, Malaysia and Singapore were also closed on Tuesday.

Sydney, though, fell after the Reserve Bank of Australia lifted interest rates 25 basis points, the first hike there since 2010 and more than the 15 points expected. Officials also hinted that more increases were in the pipeline.

Shares in Seoul, Taipei, Bangkok and Wellington were also in retreat, while London was on the back foot in early trade. Frankfurt and Paris edged up.

 

Citigroup-Sparked ‘Flash Crash’

Globally, world stocks rose on Tuesday and US 10-year Treasury yields held above 3% as investors prepared for the Federal Reserve’s rate hike.

MSCI’s benchmark for global stocks gained 0.1% by 0813 GMT as European shares rose after surviving a “flash crash” on Monday caused by a single sell order trade by Citigroup.

The pan-European STOXX 600 equity benchmark was up 0.8%, bouncing back from Monday’s losses with a tech-led rally on Wall Street and supported by upbeat earnings reports and gains in banking stocks tracking higher bond yields.

“These are small flashes of sunshine in the markets. The broader scenario however is not encouraging,” said Enrico Vaccari, head of institutional sales at Consultinvest in Milan.

“Even though there’s room for stock markets to rally from oversold levels, in the long term the headwinds are too many, simply because the speed of the Fed’s rate hikes will drive equity and especially bond market movements,” he added.

 

China Covid Lockdowns Hit Oil Prices

On Monday, Wall Street closed a seesaw session higher as investors bought into tech stocks in the last hour of trading amid bets they had been overly beaten down ahead of this week’s Fed meeting.

Around 250 basis points of rate hikes by the end of this year are already priced in by money markets, which some analysts say reduces the scope for hawkish surprises this week.

The dollar, which has been supported by safe haven buying on worries over the economic outlook, stayed just below the nearly two-decade high reached in April and the euro steadied above the lowest level in more five than years hit last month.

Oil prices slipped, pulled in opposite directions by China’s Covid-19 lockdowns, which could weigh on fuel demand, and prospects for a supply hit from a possible European oil embargo on Russia.

 

Key figures at around 0810 GMT

Hong Kong – Hang Seng Index > UP 0.1% at 21,101.89 (close)

London – FTSE 100 > DOWN 0.1% at 7,538.33

Tokyo – Nikkei 225 > Closed for a holiday

Shanghai – Composite > Closed for a holiday

West Texas Intermediate > DOWN 0.5% at $104.66 per barrel

Brent North Sea crude > DOWN 0.6% at $106.92 per barrel

New York – Dow > UP 0.3% at 33,061.50 (Monday close)

 

  • Reuters with additional editing by Sean O’Meara

 

Read more:

More Rate Hikes Seen in South Korea, Inflation at 13-Year High

HSBC Shares Climb on Ping An’s Call to Split Bank Up

Sean O’Meara

Sean O’Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.