Chinese Business

Most stocks suffered more selling Wednesday while oil held losses on growing fears Federal Reserve monetary tightening will tip the US economy into recession.

The drop followed another day deep in the red for New York’s three main indexes after the heads of Wall Street’s leading banks warned of tough times ahead in 2023.

JPMorgan Chase chief Jamie Dimon tipped a “mild to hard recession” and Goldman Sachs’ David Solomon said jobs and pay would be hit, while Morgan Stanley and Bank of America were also uneasy about the outlook.

The comments added to the downbeat mood that has coursed through trading floors at the start of the week, after forecast-beating reports on jobs and the giant US services sector fanned worries the Fed will have to push interest rates higher than hoped.

Markets had been rising healthily ahead of Friday’s employment figures after a weaker-than-expected inflation reading for October suggested the almost year-long tightening campaign was finally affecting prices.

“Any hopes that the Fed would turn more dovish in the months ahead have been dashed significantly as the vast US services industry is where sticky inflation hangs out,” said SPI Asset Management’s Stephen Innes.

He added that the latest readings suggest rates will go above five percent before the Fed stops hiking, while several observers have suggested they will not be reduced until 2024.

Hong Kong, Tokyo, Shanghai, Sydney, Seoul, Singapore, Mumbai, Bangkok, Manila and Jakarta all dropped. London opened slightly higher, Paris was flat and Frankfurt slipped.

And Lauren Goodwin, at New York Life Investments, saw further pain ahead for markets.

“We have not yet seen the bottom on equity prices,” she said, according to Bloomberg News. “While this phase of equity market volatility is likely to end in the next few months, earnings have not yet adapted to a recessionary environment.”

The sombre outlook overshadowed China’s moves to wind back some of its harsh Covid rules that traders hope will kickstart the world’s number two economy, which has been battered this year by months of lockdowns and other containment measures.

In a sign of the impact the zero-Covid strategy has had, data Wednesday showed that imports and exports and imports plunged far more than expected in November.

On Wednesday officials announced for the first time a nationwide loosening of restrictions, including a reduction in mandatory PCR tests and allowing some positive cases to quarantine at home.

But while the country edges back to normality, Zhiwei Zhang, of Pinpoint Asset Management, warned that it would take time.

“The zero-Covid policy has been loosened, but mobility has not recovered much on the national level,” he said. “I expect exports will stay weak in the next few months as China goes through a bumpy reopening process.

“As global demand weakens in 2023, China will have to rely more on domestic demand.”

And other observers said the recent rally fuelled by the reopening may have gone too far and traders were now taking a step back as they contemplate a likely spike in infections in the country.

Oil prices remained stuck at lows not seen for around a year as demand expectations tumble.

Brent on Tuesday sank below $80 for the first time since January, while WTI was at its lowest since December, having plunged from the 14-year highs of around $140 touched in March after Russia invaded Ukraine. Both contracts were only slightly higher in Asian trade.

“The crude demand outlook is getting crushed as we are in a slowdown basically across all the major economies,” said OANDA’s Edward Moya.

“Supplies seem plentiful over the near term and that has everyone hesitating on what was one of the easiest trades of the year.”

– Key figures around 0820 GMT –

Tokyo – Nikkei 225: DOWN 0.7 percent at 27,686.40 (close)

Hong Kong – Hang Seng Index: DOWN 3.2 percent at 18,814.82 (close)

Shanghai – Composite: DOWN 0.4 percent at 3,199.62 (close)

London – FTSE 100: UP 0.5 percent at 7,558.09

Euro/dollar: DOWN at $1.0458 from $1.0470 on Tuesday

Dollar/yen: UP at 137.48 yen from 137.04 yen

Pound/dollar: DOWN at $1.2126 from $1.2133

Euro/pound: DOWN at 86.20 pence from 86.26 pence

West Texas Intermediate: UP 0.2 percent at $74.38 per barrel

Brent North Sea crude: UP 0.3 percent at $79.59 per barrel

New York – Dow: DOWN 1.0 percent at 33,596.34 (close)

China’s imports and exports plunged in November to levels not seen since early 2020, official figures showed Wednesday, as severe Covid restrictions hit the economy hard.

The last major economy still wedded to a zero-tolerance virus policy, Beijing’s snap lockdowns, travel curbs and mass testing have stifled business activity, disrupted supply chains and dampened consumption.

Imports in November fell 10.6 percent year-on-year, the biggest drop since May 2020, according to the General Administration of Customs.

Meanwhile, exports fell 8.7 percent over the same period — the steepest decline since February 2020, when the country was mired in the early stages of the pandemic.

“Weakening domestic and foreign demand, Covid disruptions and a rising comparison base lead to a perfect but well-expected storm to China’s exports and imports,” Bruce Pang, chief economist at Jones Lang LaSalle, told Bloomberg News.

The figures are the latest in a string of gloomy economic indicators as the world’s number two economy charts a faltering path out of zero-Covid.

Official data last week showed China’s factory activity shrank for a second straight month in November, as large swathes of the country were hit by lockdowns and transport disruptions.

The Purchasing Managers’ Index — a key gauge of manufacturing — fell to 48.0 from 49.2 the month prior, well below the 50-point mark separating growth from contraction, according to the National Bureau of Statistics.

“In November, the pandemic had a negative impact on the production and operation of some enterprises, production somewhat slowed, and product order volumes decreased,” the bureau’s senior statistician Zhao Qinghe said.

Some suppliers had complained of transport and logistics problems, while demand from both the domestic and overseas markets fell, he added.

– ‘Bumpy reopening’ –

China’s ruling Communist Party has signalled a shift in Covid messaging since the country’s largest protests in decades took aim last week at lockdowns and other measures.

Local authorities have begun easing testing requirements and other restrictions, but travel between provinces remains complicated and health measures continue to vary from place to place.

“The zero-Covid policy has been loosened, but mobility has not recovered much on the national level,” said Zhiwei Zhang, chief economist of Pinpoint Asset Management.

“I expect exports will stay weak in the next few months as China goes through a bumpy reopening process,” he added.

“As global demand weakens in 2023, China will have to rely more on domestic demand.”

Chinese leaders have set an annual economic growth target of about 5.5 percent, but many observers think the country will struggle to hit it, despite announcing a better-than-expected 3.9 percent expansion in the third quarter.

China’s imports and exports plunged in November to levels not seen since early 2020, as strict Covid restrictions hit the economy hard, according to official figures released Wednesday. 

Beijing’s strict zero-Covid policy of snap lockdowns, travel curbs and daily mass testing has left businesses reeling, disrupted supply chains and dampened consumption. 

November imports fell 10.6 percent year-on-year, the biggest collapse since May 2020. 

Exports fell by 8.7 percent year-on-year, the biggest drop since February 2020, when the country was mired in the early stages of the pandemic. 

The threat of recession in the United States and Europe, coupled with soaring energy prices, is weakening demand for Chinese products. 

After nationwide anti-lockdown protests last week, the government has signalled a shift in messaging and local authorities have begun easing some restrictions — which may brighten the outlook in the coming months.   

But travel between provinces remains complicated and an economic recovery may take time, with health measures highly variable across the country. 

China’s factory activity shrank for a second straight month in November, official data last week showed, as large swathes of the country were hit by lockdowns and transport disruptions.

The Purchasing Managers’ Index — a key gauge of manufacturing in the world’s second-biggest economy — came in at 48.0, down from October’s 49.2 and well below the 50-point mark separating growth from contraction, according to the National Bureau of Statistics.

Chinese leaders have set an annual economic growth target of about 5.5 percent, but many observers think the country will struggle to hit it, despite announcing a better-than-expected 3.9 percent expansion in the third quarter.

This was supposed to be the comeback year for the world economy following the Covid pandemic.

Instead, 2022 was marked by a new war, record inflation and climate-linked disasters. It was a “polycrisis” year, a term popularised by historian Adam Tooze.

Get ready for more gloom in 2023.

“The number of crises has increased since the start of the century,” said Roel Beetsma, professor of macroeconomics at the University of Amsterdam

“Since World War Two we have never seen such a complicated situation,” he told AFP.

After the Covid-induced economic crisis of 2020, consumer prices began to rise in 2021 as countries emerged from lockdowns or other restrictions.

Central bankers insisted that high inflation would only be temporary as economies returned to normal. But Russia’s invasion of Ukraine in late February sent energy and food prices soaring.

Many countries are now grappling with cost-of-living crises because wages are not keeping up with inflation, forcing households to make difficult choices in their spending.

“Everything has become more expensive, from cream to wine and electricity,” said Nicole Eisermann from her stand at the Frankfurt Christmas market.

Central banks played catch-up. They started to raise interest rates this year in an effort to tame galloping inflation — at the risk of tipping countries into deep recessions, since higher borrowing costs mean slower economic activity.

Inflation has finally started to slow down in the United States and the eurozone. 

– Careful spending –

Consumer prices in the Group of 20 developed and emerging nations are expected to reach eight percent in the fourth quarter before falling to 5.5 percent next year, according to the Organisation for Economic Cooperation and Development.

The OECD encourages governments to provide aid to bring relief to households.

In the 27-nation European Union, 674 billion euros ($704 billion) have been earmarked so far to shield consumers from high energy prices, according to the Bruegel think tank.

Germany, Europe’s biggest economy and the most dependent on Russia energy supplies, accounts for 264 billion euros of that total.

One in two Germans say they now only spend on essential items, according to a survey by EY consultancy.

“I am very careful but I have a lot of children and grandchildren,” said Guenther Blum, a shopper at the Frankfurt Christmas market.

Rising interest rates have also hurt consumers and businesses, though US Federal Reserve chairman Jerome Powell signalled last week that the pace of hikes could ease “as soon as” December.

He warned, however, that policy will probably have to remain tight for some time to restore price stability.

For her part, European Central Bank president Christine Lagarde sent a clear signal that the ECB would maintain its tightening policy, saying that eurozone inflation had yet to peak.

Economists expect Germany and another major eurozone economy, Italy, to fall into recession. Britain’s economy is already shrinking. Rating agency S&P Global foresees stagnation for the eurozone in 2023.

But the International Monetary Fund still expects the world economy to expand in 2023, with growth of 2.7 percent. The OECD is forecasting 2.2-percent growth.

The coronavirus pandemic, meanwhile, remains a wildcard for the global economy.

China’s zero-Covid policy restrained growth in the world’s second biggest economy, but the authorities have started to relax restrictions following nationwide protests.

– Climate costs –

But for Beetsma, the biggest crisis is climate change, which is “happening in slow motion”.

Natural and man-made catastrophes have caused $268 billion in economic losses so far in 2022, according to reinsurance giant Swiss Re. Hurricane Ian alone cost an estimated insured loss of $50-65 billion.

Floods in Pakistan resulted in $30 billion in damage and economic loss this year.

Governments agreed at United Nations climate talks (COP27) in Egypt in November to create a fund to cover the losses suffered by vulnerable developing countries devastated by natural disasters.

But the COP27 summit ended without new commitments to phase out the use of fossil fuels, despite the need to cut greenhouse gas emissions and slow global warming.

“It is not an acute crisis but a very long-term crisis, protracted,” Beetsma said. “If we don’t do enough this will hit us in unprecedented scale.”

International streaming platforms were among the biggest pandemic winners, seeing subscriber numbers soar, but US giants have turned abroad as countries re-opened — with Thailand firmly in their sights.

The kingdom’s high internet penetration, long-standing and highly regarded film industry — as well as roughly six million active users of streaming services, according to 2021 data — present a golden opportunity.

Big players such as Amazon Prime and Netflix, who claim 200 million and 220 million subscribers worldwide respectively, have taken note as new sign-ups have levelled off in more established markets such as North America and Europe.

October saw the launch of Prime’s Thai-service Prime Video at almost the same moment Netflix announced six locally produced films and series for the coming months.

“The competition is everywhere,” said Malobika Banerji, director of content for Southeast Asia at Netflix, which has a regional hub in Singapore.

Nowhere is that more apparent than Thailand’s capital, where Prime’s “Lord of the Rings” spinoff mega-production “Rings of Power” jostles for attention with Netflix’s latest South Korean series on billboards.

“We do believe that Thailand will be a big part of our subscriber growth in the years to come,” said Prime Video’s director of international development Josh McIvor.

“Our goal is really to try to be the most local of the global streaming services,” he said, pointing towards their earlier expansion into Japan — where they outstrip Netflix.

However, their rival’s longer-term investment is apparent: Netflix saw a 20 percent growth in Asia-Pacific subscribers last year, according to a recent quarterly report by the firm.

– Seeking the next ‘Squid Game’ –

While big-ticket international series such as “Rings of Power” lead the publicity, the streamers see locally produced content — such as Prime’s hugely successful Indian crime-thriller “Mirzapur” — as the longer-term workhorses of their offering.

The two fundamental “pillars” to success are local originals -– “across scripted, unscripted and film” -– and licensed locally produced series, according to Amazon Studios’ director of local content Erika North.

It is the second that drew Prime to Thailand, she said: they hope to build on a long Thai film history with higher production values than elsewhere in the region.

Similarly, Netflix is betting big on local content going international, dreaming of the next “Squid Game”, the South Korean critical and commercial blockbuster.

Netflix’s Banerji said there were “more and more” examples of this, citing Thai mystery-thriller series “Girl from Nowhere”.

Streaming analysts have been watching the US firms — including Disney+ — to see if they can compete with local rivals.

A report from the consultancy Kantar this year found streaming had edged out traditional watching in the Philippines, Singapore, Malaysia, Vietnam, Thailand, and Indonesia.

But Thailand has a special appeal, said Vivek Couto, executive director and co-founder of Media Partners Asia (MPA), which monitors streaming platforms.

An analysis from MPA this year forecast the expected income from streaming in Thailand in 2022 at around $809 million.

Couto said the kingdom offered an established creative community, more advanced broadband infrastructure than other Southeast Asian countries — and a population with the “most propensity to pay for online video content”.

– Creative control –

Almost a third of Thai households already subscribe to an on-demand streaming service, according to their data, far ahead of Indonesia (12 percent) or Vietnam (four percent).

“If content really works locally and (is) sustainable, then it will travel anywhere,” Couto said.

“I think that’s why Amazon and Netflix are seeing the potential of Thai producers, Thai series.”

While Thai cinema has enjoyed occasional critical success — director Apichatpong Weerasethakul has won several prizes at the Cannes Film Festival, including the top award in 2010 — it has not become an established global force.

Local directors and producers are cautiously optimistic the new interest from deep-pocketed streaming giants could give the local industry a boost.

“Some content, you cannot even dream of doing it with a studio, but with streaming, it is possible,” said Wisit Sasanatieng, director and producer of upcoming Netflix crime film “The Murderer”.

Thai producer Cattleya Paosrijaroen, co-founder of the independent company 185 Films, welcomed the shift.

International firms could bring in better standards, she said, offering better conditions to crews currently expected to work 16-hour shifts.

But she struck a note of caution. 

“If your film is being produced by Netflix, they can control the content,” Cattleya said.

Asian investors extended a sell-off across global markets Wednesday while oil held losses on growing fears Federal Reserve monetary tightening will tip the US economy into recession.

The drop followed another day deep in the red for New York’s three main indexes after the heads of Wall Street’s leading banks warned of tough times ahead in 2023.

JPMorgan Chase chief Jamie Dimon tipped a “mild to hard recession” and Goldman Sachs’ David Solomon said jobs and pay would be hit, while Morgan Stanley and Bank of America were also uneasy about the outlook.

The comments added to the downbeat mood that has coursed through trading floors at the start of the week, after forecast-beating reports on jobs and the giant US services sector fanned worries the Fed will have to push interest rates higher than hoped.

Markets had been rising healthily ahead of Friday’s employment figures after a weaker-than-expected inflation reading for October suggested the almost year-long tightening campaign was finally affecting prices.

“Any hopes that the Fed would turn more dovish in the months ahead have been dashed significantly as the vast US services industry is where sticky inflation hangs out,” said SPI Asset Management’s Stephen Innes.  

He added that the latest readings suggest rates will go above five percent before the Fed stops hiking, while several observers have suggested they will not be reduced until 2024.

In early trade, Tokyo, Shanghai, Sydney, Seoul, Singapore, Manila and Jakarta were all down. However, Hong Kong, which has been the standout performer in recent weeks, clipped slightly higher.

But Lauren Goodwin, at New York Life Investments, saw further pain ahead for markets.

“We have not yet seen the bottom on equity prices,” she said, according to Bloomberg News. “While this phase of equity market volatility is likely to end in the next few months, earnings have not yet adapted to a recessionary environment.”

The sombre outlook overshadowed hopes that China’s moves to wind back some of its harsh Covid rules will kickstart the world’s number two economy, which has been battered this year by months of lockdowns and other containment measures.

It also kept oil prices at lows not seen for around a year as demand expectations tumble.

Brent on Tuesday sank below $80 for the first time since January, while WTI was at its lowest since December, having plunged from the 14-year highs of around $140 touched in March after Russia invaded Ukraine. Both contracts were barely moved in Asian trade.

“The crude demand outlook is getting crushed as we are in a slowdown basically across all the major economies,” said OANDA’s Edward Moya. 

“Supplies seem plentiful over the near term and that has everyone hesitating on what was one of the easiest trades of the year.”

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: DOWN 0.5 percent at 27,756.94 (break)

Hong Kong – Hang Seng Index: UP 0.5 percent at 19,529.70

Shanghai – Composite: DOWN 0.3 percent at 3,201.71

Euro/dollar: DOWN at $1.0465 from $1.0470 on Tuesday

Dollar/yen: UP at 137.11 yen from 137.04 yen

Pound/dollar: UP at $1.2135 from $1.2133

Euro/pound: DOWN at 86.24 pence from 86.26 pence

West Texas Intermediate: DOWN 0.1 percent at $74.16 per barrel

Brent North Sea crude: UP 0.2 percent at $79.48 per barrel

New York – Dow: DOWN 1.0 percent at 33,596.34 (close)

London – FTSE 100: DOWN 0.6 percent at 7,521.39 (close)

President Joe Biden declared the comeback of US manufacturing Tuesday at the site of a mammoth expansion to a Taiwanese-owned semiconductor plant aimed at breaking risky US dependency on foreign-based producers for the vital component.

“American manufacturing is back, folks. American manufacturing is back,” Biden said at the plant in Phoenix, Arizona, accompanied by senior political allies and titans of the corporate world, including Apple CEO Tim Cook and Micron CEO Sanjay Mehrotra.

The project by TSMC, the world’s biggest maker of leading-edge chips, would go a long way to meeting the US goal of ending reliance on foreign-located factories — particularly in Taiwan, which is under constant threat of being absorbed or even invaded by China.

TSMC, or Taiwan Semiconductor Manufacturing Company, announced it is building a second Phoenix plant by 2026, ballooning its investment in Arizona from $12 billion to $40 billion, with a target of producing some 600,000 microchips a year. 

About 10,000 high-tech jobs will be created once both plants are working, the company said.

White House National Economic Council Director Brian Deese said the “major milestone” is one of the largest foreign direct investments in US history, while TSMC chairman Mark Liu heralded “a giant step forward to help build a vibrant semiconductor ecosystem in the United States.”

Biden clearly hoped to get political credit for the investment influx, pointing to the effect of his signature CHIPS Act, which sets aside almost $53 billion for subsidies and research in the semiconductors sector.

It’s a message he’ll want to spread in Arizona, which was long a Republican-dominated state but has turned into a battleground where the president’s Democrats do increasingly well.

– Size matters –

Most of the current US supply of microchips comes from overseas. Although the companies are largely based in reliable US allies in Asia, the sheer distance and, especially, the geopolitical tensions around Taiwan, have the US government and companies like Apple nervous.

“Virtually every large tech firm, including automotive firms and any company that uses technology is sweating bullets that something’s going to happen between Taiwan and China. And so there’s a massive rush to shift manufacturing out of both countries,” technology analyst Rob Enderle said.

The miniscule, hard-to-make gadgets are at the heart of almost every modern appliance, vehicle and advanced weapon.

While sheer quantity matters, quality — sophistication and small size — is also increasingly important. Even typical smartphones require the higher-end semiconductors.

The new TSMC plant will produce state-of-the-art 3-nanometer chips, while the existing facility will start reducing the size of its current 5-nanometer chips to a more sophisticated 4 nanometers.

The twin plants “could meet the entire US demand for advanced chips when they’re completed. That’s the definition of supply chain resilience,” Ronnie Chatterji, National Economic Council deputy director for industrial policy, told reporters.

Biden framed the TSMC investment in a broader context of revitalizing US-based manufacturing — one of his presidency’s key themes.

“Over 30 years ago, America had more than 30 percent of the global chip production. Then something happened,” he said.

“American manufacturing, the backbone of our economy, began to get hollowed out. Companies moved jobs overseas. Today we’re down to producing only around 10 percent of the world’s chips, despite leading the world in research and design.”

Deese, one of Biden’s most senior advisors, said Biden’s signature public investment policies — the CHIPS Act and the giant Inflation Reduction Act — are revolutionizing the way the government works with private companies.

For almost four decades, the idea was “trickle down,” where government would “get out the way” and cut taxes for big companies to attract investment, he said.

Now the goal is to use the public money to kickstart activity and “crowd in” investors.

The goal is not to exclude “private companies, but in fact, encouraging private investment at historic scale,” Deese said.

Wall Street stocks fell again Tuesday, tumbling after leading bankers warned of rising recession risks, while worries of an oil-supply glut sent the US benchmark to its lowest level of 2022.

JPMorgan Chase Chief Executive Jamie Dimon said in an interview with CNBC that he saw the chance for a “mild to hard recession” next year, while Goldman Sachs chief David Solomon offered a similar appraisal in a public appearance.

“The outlook is clearly darkening and that has many traders scaling down their risky bets,” said Edward Moya at OANDA trading group.

All three major US indices finished decisively lower, with the S&P 500 losing 1.4 percent.

Tuesday’s losses added to the toll this week after major indices fell more than one percent on Monday, over worries that a recent batch of solid US economic data will prolong the Federal Reserve’s aggressive policies to counter inflation.

“The data looks increasingly like 2023 is going to include a recession,” said Merk Investment’s Nick Reece. “I don’t think a recession has been… adequately priced into the markets.”

Earlier, London, Frankfurt and Paris equity markets all closed lower after Asia mostly fell. 

Recession worries also weighed on the oil market, where US benchmark West Texas Intermediate finished at $74.25 a barrel, down 3.5 percent, in its lowest closing level of the year.

During the session, WTI slumped as low as $73.41 a barrel.

The drop has come despite signs that China at last appears to be retreating from its zero-tolerance policy to counter Covid-19.

But CMC Markets analyst Michael Hewson said traders were unsure how much of an economic boost Beijing’s shift will translate to. 

“Hopes of a demand boost from a China reopening have been tempered by the realization that while infection rates remain high any recovery will be muted at best,” he said.

Moreover, the oil market has “lost” its tightness compared with earlier this year, said OANDA’s Moya.

“It seems to have happened quickly but the crude demand outlook is getting crushed as we are in a slowdown basically across all the major economies,” Moya added.

“Supplies seem plentiful over the near-term and that has everyone hesitating on what was one of the easiest trades of the year,” he said.

– Key figures around 2150 GMT –

New York – Dow: DOWN 1.0 percent at 33,596.34 (close)

New York – S&P 500: DOWN 1.4 percent at 3,941.26 (close)

New York – Nasdaq: DOWN 2.0 percent at 11,014.89 (close)

London – FTSE 100: DOWN 0.6 percent at 7,521.39 (close)

Frankfurt – DAX: DOWN 0.7 percent at 14,343.19 (close)

Paris – CAC 40: DOWN 0.1 percent at 6,687.79 (close)

EURO STOXX 50: DOWN 0.4 percent at 3,939.19 (close)

Tokyo – Nikkei 225: UP 0.2 percent at 27,885.87 (close)

Hong Kong – Hang Seng Index: DOWN 0.4 percent at 19,441.18 (close)

Shanghai – Composite: FLAT at 3,212.53 (close)

Euro/dollar: DOWN at $1.0470 from $1.0491 on Monday

Dollar/yen: UP at 137.04 yen from 136.75 yen

Pound/dollar: DOWN at $1.2133 from $1.2190

Euro/pound: UP at 86.26 pence from 86.07 pence

West Texas Intermediate: DOWN 3.5 percent at $74.25 per barrel

Brent North Sea crude: DOWN 4.0 percent at $79.35 per barrel

burs-jmb/bys

Stock markets fell on Tuesday as investors were split between fears that the US Federal Reserve will maintain its aggressive anti-inflation measures and growing optimism over China’s economic reopening.

Meanwhile, oil prices tumbled, with the price of Brent crude briefly falling below $80 for the first time since January, when prices began to rise ahead of Russia’s invasion of Ukraine.

London, Frankfurt and Paris equity markets all closed lower after Asia mostly fell.

Wall Street extended losses in late morning trading following a sell-off the previous day.

Data showing a forecast-busting jump in activity in the US services sector last month raised the prospect that the Fed will not back down from sharp rate increases when it meets next week.

Monday’s data followed robust jobs figures last week and a jump in wages that give the central bank more room to cool the US economy.

Market analyst Michael Hewson at CMC Markets said the strength of the services sector data “appears to have upset the conventional wisdom that inflation might come down quite quickly, given the resilience of the numbers, as well as the rebound in wages growth seen in Friday’s payrolls report.” 

That has investors spooked again over what the Fed will do and the possibility it may push the US economy into a deep recession to tame inflation.

“Worries that the Fed could unwrap an unwelcome present of another super-sized rate hike when policymakers meet next week are sprinkling Christmas fear on indices,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“Speculation is swirling that central banks will have to be more Scrooge-like and make borrowing even more expensive to rein in inflation,” she said.

Markets had been running higher ahead of the jobs figures after a surprise drop in inflation and comments from Fed boss Jerome Powell that the bank was likely to raise rates at a slower pace.

Bets have increased on borrowing costs rising higher than five percent next year — from the current range of 3.75-4.0 percent — before the bank pauses, with no cuts seen until 2024.

“There is a prominent undercurrent of concern that the Fed is going to overtighten and trigger a deeper economic setback,” said Briefing.com analyst Patrick O’Hare.

Analysts said concerns over the Fed have overshadowed China’s easing of zero-Covid policies following nationwide protests over the measures, which have hammered the world’s second biggest economy.

Despite the prospect of higher Chinese demand for oil as the economy reopens, crude prices fell as an EU embargo on Russian oil and a G7-EU price cap on the country’s exports came into force on Monday.

“It seems that the only thing guaranteed in the oil market for now is volatility,” said OANDA trading platform analyst Craig Erlam.

After European stock markets closed, the price of Brent crude briefly fell below $80 for the first time since January, as the market is swept by volatility over the price cap and worries about global demand as central banks jack up interest rates.

CMC Markets’s Hewson said traders were also doubting how much of an economic boost the Chinese measures will provide. 

“Hopes of a demand boost from a China reopening have been tempered by the realisation that while infection rates remain high any recovery will be muted at best,” he said.

The dollar lost ground against other major currencies after gains on Monday.

– Key figures around 1630 GMT –

New York – Dow: DOWN 0.7 percent at 33,723.65 points

EURO STOXX 50: DOWN 0.4 percent at 3,939.19

London – FTSE 100: DOWN 0.6 percent at 7,521.39 

Frankfurt – DAX: DOWN 0.7 percent at 14,343.19

Paris – CAC 40: DOWN 0.1 percent at 6,687.79

Tokyo – Nikkei 225: UP 0.2 percent at 27,885.87 (close)

Hong Kong – Hang Seng Index: DOWN 0.4 percent at 19,441.18 (close)

Shanghai – Composite: FLAT at 3,212.53 (close)

Euro/dollar: UP at $1.0518 from $1.0495 on Monday

Dollar/yen: DOWN at 136.52 yen from 136.78 yen

Pound/dollar: UP at $1.2237 from $1.2186

Euro/pound: DOWN at 85.96 pence from 86.06 pence

West Texas Intermediate: DOWN 2.7 percent at $74.87 per barrel

Brent North Sea crude: DOWN 2.8 percent at $80.35 per barrel

burs-rl/kjm