The Manila Times

Recession, inflation fears pound markets anew

HONG KONG: Fears of a recession caused by sharp interest rate hikes aimed at fighting soaring inflation sent Asian and European markets tumbling on Wednesday, tracking a sharp drop on Wall Street.

The hefty selling came after more than a week of gains across the world, caused by hopes that any sign of contraction could give central banks room to ease up on their monetary tightening.

The fluctuations on trading floors show how tough it has become for investors to find their footing, just as financial policymakers struggle to find a balance between containing prices and maintaining economic growth.

Wednesday’s selling came after New York’s three main indexes tanked in reaction to data showing confidence among American consumers, who are a crucial driver of the world’s top economy, had fallen to its lowest level in more than a year.

The mood-sapping reading was partly driven by a feeling inflation would persist, suggesting consumers are not sure the Federal Reserve’s (Fed) aggressive efforts to tame inflation would work.

The news overshadowed China’s surprise move to slash the quarantine period for incoming travelers, raising hopes for further relaxations that can allow the world’s No. 2 economy to recover more quickly.

Hong Kong led losses as technology firms took a beating, while Tokyo, Shanghai, Sydney, Seoul, Mumbai, Manila, Taipei, Jakarta, Bangkok and Wellington were also well down.

London, Paris and Frankfurt all fell in the morning.

Top Fed officials on Tuesday tried to play down the chances of a recession, with the heads of the Fed in San Francisco and New York saying they were upbeat a soft landing could be achieved.

“I see us tapping on the brakes to slow to a more sustainable pace, rather than slamming on the brakes, going over the handlebars and having the proverbial recession,” San Francisco’s Mary Daly told an online event hosted by LinkedIn.

“I wouldn’t be surprised — and it’s actually in my forecast — [if growth would] slip below 2 percent, but it won’t actually pivot down into negative territory for a long period of time,” she said.

But analysts were more skeptical, with Sim Moh Siong at the Bank of Singapore saying “low US consumer expectations suggest weaker growth in (the second half of 2022), as well as growing risk of recession by year-end.”

The Conference Board’s chief economist Dana Peterson warned that the United States was likely to see a recession in late 2022.

And Emily Weis of State Street Corp. said: “The Fed still believes it can thread that very fine line between tightening financial conditions while not hurting the economy too much.”

“We’re still not sure they’re going to be able to pull that off. That’s what we’ve seen reflected in the markets over the last month or so,” she added.

Meanwhile, there was a word of warning for the outlook as companies begin to feel the pinch.

“With investors laser-focused on US growth and inflation data, both of which tanked stocks (Tuesday), do not forget earnings cuts are now coming through — the red ink is flowing through stocks, sectors and aggregated strategy models,” Stephen Innes of SPI Asset Management said.

“All regions, countries, industries and stocks are getting printed red with broad strokes. It is not looking pretty,” he added.

Oil prices dipped though remain elevated following a run-up in recent days on expectations that demand would continue to rise, and supplies remain tight owing to the ban on imports from Russia.

And while Group of Seven leaders agreed to work on a price cap for Russian oil as part of efforts to cut the Kremlin’s revenues over its invasion of Ukraine, observers warned that could not have a massive impact on prices.

Foreign Business

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2022-06-30T07:00:00.0000000Z

2022-06-30T07:00:00.0000000Z

https://digitaledition.manilatimes.net/article/282050510755138

The Manila Times