Hong Kong: Most markets fell on Wednesday while oil held losses amid growing concerns that Federal Reserve (Fed) monetary tightening could push the US economy into recession.
The drop came after another day in the red for the three major New York indexes after the heads of leading Wall Street banks warned of tough times ahead in 2023.
JPMorgan Chase President Jamie Dimon pointed to a “moderate to difficult recession” and Goldman Sachs’ David Solomon said jobs and wages would take a hit, while Morgan Stanley and Bank of America were uneasy about the outlook.
Their comments added to the dovish mood that prevailed on trading floors at the start of the week after reports beat expectations on jobs and the giant US services sector, stoking fears that the Fed could push interest rates higher than hoped.
Markets were rallying healthy ahead of last Friday’s employment figures after a weaker-than-expected inflation reading for October suggested that the nearly year-long tightening campaign is finally affecting prices.
“Any hopes that the Fed will become more dovish in the coming months have been largely dashed because the vast US services industry is where viscous inflation hangs,” said Stephen Innes of SBI Asset Management.
He added that recent readings indicate that rates will exceed 5 percent before the Fed stops rising, while many observers have indicated that they will not be cut until 2024.
Hong Kong, Tokyo, Shanghai, Sydney, Seoul, Singapore, Mumbai, Bangkok, Manila and Jakarta all fell. London opened slightly higher, Paris held steady and Frankfurt fell behind.
Lauren Goodwin of New York Life Investments saw more pain ahead for the markets.
“We haven’t seen a stock price bottom yet,” she said, according to Bloomberg News. “While this phase of stock market volatility is likely to end in the next few months, earnings have yet to adjust to a recessionary environment.”
The bleak outlook has overshadowed China’s moves to roll back some of the harsh Covid rules that traders hope will jump-start the world’s No. 2 economy, battered this year by months of lockdowns and other containment measures.
In a sign of the impact of Beijing’s “zero Covid” strategy, data on Wednesday showed that imports, exports and imports fell much more than expected in November.
Also Wednesday, officials announced for the first time an easing of restrictions nationwide, including reducing mandatory PCR tests and allowing some positive cases to be quarantined at home.
But as the country returns to normal, Zhiwei Zhang of Pinpoint Asset Management warned that it will take some time.
“The zero Covid policy has been eased, but mobility has not recovered much nationally,” he said. “I expect exports to remain weak in the next few months as China goes through a bumpy reopening process.”
“With weak global demand in 2023, China will have to rely more on domestic demand,” he added.
Other observers said the recent reopening-fuelled rally may have gone too far and traders are now backing off as they contemplate a potential spike in infections in the country.
Oil prices remained stuck at lows not seen in about a year as the demand outlook deteriorated.
On Tuesday, Brent crude fell below $80 for the first time since January, while WTI was at its lowest since December, having fallen from 14-year highs of around $140 it touched in March after Russia’s invasion of Ukraine. Both contracts were slightly higher in Asian trade.
“The outlook for crude demand is deteriorating because we are basically slowing down in all the major economies,” said Edward Moya of Oanda.
He added, “It seems that supplies are ample in the near term, and this made everyone hesitate in what was one of the easiest deals of the year.”