HONG KONG, Sept 16 — Asian markets sold off sharply today and Europe looked set to follow as investors braced for a hefty US rate hike next week amid growing concerns of a global recession following warnings from the World Bank and the International Monetary Fund.
MSCI’s broadest index of Asia-Pacific shares outside Japan opened today in negative territory and sold off during the day.
It was last down 1.1 per cent, after US stocks ended the previous session with mild losses.
In the region, Australian shares were down 1.34 per cent today, while Japan’s Nikkei stock index slipped 1 per cent.
Hong Kong’s Hang Seng Index was down 1.1 per cent while China’s CSI300 Index was 0.86 per cent lower.
“There is pain emerging in the equities markets and we are entering a phase where there will be further liquidation because rates are going to stay higher for longer,” said Suresh Tantia, senior investment strategist at Credit Suisse.
“A strong US dollar does not help Asian markets and it will be a further negative for this region’s equity markets.”
The dollar dropped 0.14 per cent against the yen to 142.95, after being down by 0.4 per cent earlier in the session.
Japan’s threats of currency intervention might slow but not stop the yen from hurtling towards three-decade lows before the year end, market analysts and fund managers say.
The euro was down 0.1 per cent on the day at US$0.9987, having lost 0.51 per cent in a month, while the dollar index =USD, which tracks the greenback against a basket of currencies of other major trading partners, was up at 109.83.
China’s yuan weakened past the psychologically important 7 per US dollar level for the first time in two years.
In early European trades, the pan-region Euro Stoxx 50 futures were down 0.76 per cent at 3,517, German DAX futures were down 0.93 per cent at 12,849, FTSE futures were down 0.61 per cent at 7,247.5.
US stock futures, the S&P 500 e-minis, were down 0.7 per cent at 3,874.8.
The global economic outlook remains downbeat and some countries are expected to slip into recession in 2023, but it is too early to say if there will be a widespread global recession, the IMF said yesterday.
The IMF in July revised down global growth to 3.2 per cent in 2022 and 2.9 per cent in 2023. It will release a new outlook next month.
By comparison, the World Bank said the world could be edging towards a global recession in 2023 as central banks across the world simultaneously hike interest rates to combat persistent inflation.
The world’s three largest economies — the United States, China, and the euro zone — have been slowing sharply, and even a “moderate hit to the global economy over the next year could tip it into recession,”, it said.
In China, data today showed surprising resilience in August, with faster-than-expected growth in factory output and retail sales shoring up a fragile recovery, but a deepening property slump and cooling exports are weighing on the outlook.
Despite the better readings, investors are still focused on China’s pursuit of a zero Covid strategy, which nearly pushed the economy into contraction in the second quarter.
“China’s near term economic activity hinges on its Covid policies, how they manage it. With a more pragmatic approach, the market expects there would be more confidence that would inject more optimism into the market,” said Marcella Chow, a global market strategist at JPMorgan Asset Management.
In Asian trade, the yield on benchmark 10-year Treasury notes stood at 3.4533 per cent compared with its US close of 3.459 per cent yesterday.
The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 3.8925 per cent compared with a US close of 3.873.
Those yields hit a new 15-year high after mixed U.S retail sales and jobless claims data, which analysts said reinforced the case for aggressive Federal Reserve rate hikes.
Markets are currently fully pricing in a 75 basis point rate hike next week, economists said.
US crude ticked up 0.31 per cent to US$85.36 a barrel. Brent crude rose to US$91.24 per barrel.
Gold was slightly lower. Spot gold was traded at US$1662.49 per ounce. — Reuters
