Stocks were mixed in Asia on Friday as soaring inflation and a series of interest rate hikes around the world continued to fan recession fears, while a big miss on Chinese growth added to anxiety about the world’s biggest economies.
Below-par earnings from JP Morgan and Morgan Stanley compounded worries that companies’ profits would be hit by the fallout from a number of issues including rising prices, monetary policy tightening and the war in Ukraine.
After rate hikes by several countries this week, investors expect the Federal Reserve to lift rates this month by 75 basis points as officials battle decades-high inflation, though some observers suggest a one-percentage-point move could even be on the cards.
The latest outsized US inflation print this week — caused by a spike in energy prices — followed last Friday’s strong US jobs data, giving the Fed room to continue its campaign to suck cash out of the financial system.
While experts warn that raising rates risks hammering the economy, the bank has made it clear its number-one priority is bringing down prices.
This has sent the dollar racing across the board, and Steve Englander at Standard Chartered Bank warned there was no end in sight for its advance.
The currency’s strength is “largely a flight to safety”, he told Bloomberg TV.
“The problem is until we get to see some light at the end of the tunnel with respect to either inflation coming off or oil prices coming off because of supply creation rather than demand destruction, it’s hard to call a top to it.”
With investors increasingly pricing in a recession next year, equities are struggling to recover.
US markets mostly fell, with sentiment weighed by the disappointing reports from JPMorgan Chase & Co. and Morgan Stanley. They will be followed over the next few days by Citigroup, Goldman Sachs and Bank of America.
Hong Kong and mainland Chinese markets led Asian losses after data showed China’s economy grew just 0.4 percent in the second quarter as it was battered by Covid lockdowns in major cities including Shanghai and Beijing.
The reading was well off the 1.6 percent predicted by analysts in an AFP survey, though there was speculation that it will pressure authorities to unveil new stimulus measures.
“We remain cautious on growth outlook in the second half, as spread of the much more infectious Omicron variant across the country could trigger another round of widespread lockdowns,” Nomura chief China economist Ting Lu told AFP.
Hong Kong-listed tech firms also tumbled on news that executives at Alibaba had been called in for meetings with Chinese officials following the theft of a vast police database.
Tokyo, Singapore, Seoul, Manila and Taipei rose but Sydney, Wellington, Bangkok, Manila and Jakarta fell.
London rose in the morning, along with Paris and Frankfurt.
The euro continues to hover around parity with the greenback as the European Central Bank (ECB) grapples with a range of issues including an energy crisis amid fears Russia will cut off its gas supplies in retaliation for Ukraine war sanctions.
Meanwhile, policymakers have yet to lift interest rates — leaving the bank well behind the Fed — on concerns about the vast differences, or “fragmentation”, between the eurozone’s individual sovereign bond rates.
Added to that is new political upheaval in Italy, where the government is teetering.
“With a weak currency, sky-high inflation, recession risk due to the energy crisis and political turmoil in Italy, the ECB is facing an impossible mission to solve all its problems simultaneously with monetary policy,” said SPI Asset Management’s Stephen Innes.
“Front-loading a 50 basis point hike and revealing a solid anti-fragmentation tool seems the optimal solution for the central bank… but that is likely not enough to support a sustainable euro rebound.”
Traders are keeping tabs on Biden’s visit to Saudi Arabia as he tries to persuade the kingdom to help bring down crude prices by pumping more.
While both main contracts have fallen in recent weeks to below $100 owing recession fears, opinion is mixed on the outlook for the crude market, with some predicting it will surge to new highs and others warning it could fall to $65.
– Key figures at around 0810 GMT –
Tokyo – Nikkei 225: UP 0.5 percent at 26,788.47 (close)
Hong Kong – Hang Seng Index: DOWN 2.2 percent at 20,297.72 (close)
Shanghai – Composite: DOWN 1.6 percent at 3,228.06 (close)
London – FTSE 100: UP 0.7 percent at 7,090.70
Euro/dollar: UP at $1.0024 from $1.0022 Thursday
Pound/dollar: UP at $1.1836 from $1.1826
Euro/pound: UP at 84.75 pence from 84.72 pence
Dollar/yen: DOWN at 138.85 yen from 138.93 yen
West Texas Intermediate: DOWN 0.6 percent at $95.22 per barrel
Brent North Sea crude: DOWN 0.2 percent at $99.86 per barrel
New York – Dow: DOWN 0.5 percent at 30,630.17 (close)
