Asian Markets Suffer as Gloomy Outlook, Fed Fears Dominate

 

Asian markets ended the week on a low, pushed back by a downbeat global outlook and fears over US labour data.

China’s markets were an outlier after fresh Covid lockdowns sparked hopes of more financial support from Beijing but elsewhere the mood across the region’s trading floors was gloomy.

Japan’s Nikkei share average marked its worst week in nearly three months on Friday, while the benchmark ended flat for the day, pulled down by concerns over aggressive interest rate hikes globally, with a weaker yen providing only a smidgen of comfort.

The Nikkei ended 0.04% lower at 27,650.84 and posted a 3.4% weekly decline, its worst loss since mid-June.

The broader Topix fell 0.27% to 1,930.17, after touching a six-week low of 1,926.05 earlier in the session. The index lost 2.5% for this week.

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Market expectations for US interest rates have crept steadily higher, hurting appetite for stocks, since last week’s speech from Federal Reserve chair Jerome Powell, who reiterated his number one focus was taming inflation.

“Many people in the equity markets, including Japan, now think that the upside is very limited, because of that [hawkish] stance of the Federal Reserve,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management in Tokyo.

Technology firms took a clobbering, making the sector the largest drag on the broader market. Gaming company Nexon, which touched a six-month low after reporting quarterly earnings on Thursday, fell 3% and was the biggest pullback on the Nikkei.

Focus has shifted to US labour data due later on Friday, which if strong could reinforce expectations that the Fed hikes rates by a steep 75 basis points later in September, and on the currency market where the yen is wallowing at a 24-year low.

 

China Blue-Chips Fall

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5%, heading for its worst weekly performance since mid-June with a tumble of 3.6%, as rising expectations of aggressive global rate hikes hit risky assets.

China’s blue-chip stocks fell, as some big cities tightened Covid-19 curbs to battle fresh outbreaks, clouding the outlook for an economic recovery.

But Shanghai stocks edged up, led by information technology shares, after a new US restriction on China’s semiconductor industry raised hopes for more domestic stimulus for the sector.

Nomura analysts maintained the view that Beijing will keep the zero-Covid policy at least until March 2023, when a political reshuffle is fully completed, following the 20th National Congress starts in October.

The Shanghai Composite Index rose 0.05%, or 1.50 points, to 3,186.48, while the Shenzhen Composite Index on China’s second exchange gained 0.44%, or 9.13 points, to 2,089.74.

The Hang Seng Index dropped 0.74%, or 145.22 points, to 19,452.09.

 

Fed Rate Hike Fears

Elsewhere across Asia equities were mixed, with bourses in Taiwan and Singapore being the top laggards. Stocks in Manila and Jakarta gained 1.1% and 0.3%, respectively.

Stocks in Bangkok were poised for a 1.4% weekly drop and set to snap a sixth straight weekly gain. 

Indian stocks fell with Mumbai’s signature Nifty 50 index down 0.05%, or 8.00 points, at 17,534.80.

Globally, world stocks were heading for a 3% loss on the week as investors brace for aggressive rate hikes from the Federal Reserve.

The fresh lockdowns in China were also fuelling concerns about global growth, while high energy costs stemming from the war in Ukraine weighed on European markets.

“The market is laser-focused on how aggressive the Fed is going to be with its hiking cycle,” Giles Coghlan, chief currency analyst at HYCM, said.

The markets are worried about “China slowing, euro zone recession and a hawkish Fed,” he added.

 

US Dollar Index Dips

The MSCI world equity index steadied above six-week lows set in the previous session but was heading for its third straight week of losses.

The dollar index, which measures its performance against a basket of six currencies, dipped 0.24% after hitting a 20-year high in the previous session.

In bond markets, the yield on benchmark two-year notes edged 2 basis points lower to 3.5006%, while the yield on 10-year bonds dipped 1 bp to 3.2537%.

Oil prices tumbled 3% overnight before recovering some ground on Friday but were on track to post sharp weekly losses on fears Covid-19 curbs in China and weak global growth will hit demand. 

Brent crude futures rose 2% to $94.15 a barrel while US West Texas Intermediate (WTI) crude futures were up by 1.75% to $88.34 a barrel. 

 

Key figures

Tokyo – Nikkei 225

Hong Kong – Hang Seng Index

Shanghai – Composite > UP 0.05% at 3,186.48 (close)

New York – Dow > UP 0.46% at 31,656.42 (Thursday close)

 

  • Reuters with additional editing by Sean O’Meara

 

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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.