Asian markets fell in trading on Monday after another tech rout on Wall Street, with the focus on the Federal Reserve’s expected interest rate hike this week.
Adding to the gloomy mood is data showing Chinese manufacturing activity shrank last month at its fastest pace since the start of the pandemic due to Covid lockdowns in the country’s biggest cities.
The government’s refusal to exit its zero-Covid policy and strict containment measures is stoking fears about the world’s second-largest economy and main driver of global growth.
Trading rooms around the world have been rocked for months by a perfect storm of crises including China lockdowns, soaring inflation, Fed plans to raise rates, rising oil prices and the war in Ukraine.
All eyes are on the US central bank’s policy meeting this week, which is expected to see it hike borrowing costs by half a point – the most since 2000 – and follow it with several more increases before the end of the year.
And now some analysts are predicting it could even announce a three-quarter point hike at some point as it battles inflation higher than 40 years.
However, with some commentators warning that rates could hit 3%, there are also concerns that the Fed could be too authoritarian and tip the US economy into recession.
Fed boss Jerome Powell “could cement the idea that 50 (basis points) is the new 25, but more worryingly for stock pickers, there’s a lot of QE to unravel,” Stephen Innes said. from SPI Asset Management, referring to the quantitative easing bond-buying program used by the Fed to keep rates low.
“So the question is how much of the impact of balance sheet runoff” has been factored in.
The prospect of rising borrowing costs has been compounded by a sharp slowdown in China, with lockdowns in major cities including Shanghai slumping production and worsening supply chains.
Data over the weekend showed the country’s manufacturing activity fell the most since February 2020, and the near future does not look promising as authorities close cinemas and gyms over the May Day holiday.
On Friday, Beijing further signaled plans to support the economy and signaled an easing of a painful technological crackdown. But the announcement follows several other recent pledges and traders have yet to see concrete action, with most keen to see a softer approach to controlling the virus.
“We remain deeply concerned about growth,” Nomura Holdings economists said in a note.
“Despite the series of policy measures announced by the Politburo meeting (Friday), we still believe that the markets should remain focused on the development of the pandemic and the corresponding zero-Covid strategy. All other policies are of secondary importance. “
In stock markets, Tokyo, Sydney, Seoul and Wellington all fell, although Manila rose.
Markets in Hong Kong and mainland China were closed along with those in Taipei, Singapore, Bangkok and Jakarta.
Struggles in China, the world’s largest importer of rough, have led to lower on-demand commodity prices, offsetting concerns over supplies from Russia caused by the war in Ukraine.
European Union talks to reduce oil imports from Russia, following embargoes imposed by the United States and Britain, continue to provide support.
“But further gains will be limited to a weaker oil demand outlook from China due to the continued expansion of lockdowns and mass testing in the region,” SPI’s Innes added.
Tokyo – Nikkei 225: 0.5% decline to 26,704.60 (close)
Hong Kong – Hang Seng Index: Closed for a public holiday
Shanghai – Composite: Closed for a public holiday
Dollar/yen: UP at 130.14 yen against 129.89 yen on Friday
Euro/dollar: DOWN to $1.0523 vs. $1.0550
Pound/dollar: DOWN to $1.2560 vs. $1.2578
Euro/pound: DOWN to 83.77 pence vs. 83.86 pence
West Texas Intermediate: 1.0% decline to $103.62 a barrel
North Sea Brent: 1.1% down to $105.95 a barrel
New York – Dow Jones: DOWN 2.8% to 32,977.21 (closing)
London – FTSE 100: UP 0.5% to 7,544.55 (closing)
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