Following another tech-led collapse on Wall Street, Asian and European markets sank in holiday-thinned trade Monday, with investors focusing on the Federal Reserve’s predicted interest rate hike this week.
Data showing China’s manufacturing activity decreased at its highest rate since the epidemic began last month, owing to Covid-19 lockdowns in the country’s major cities, added to the gloomy atmosphere.
The government’s failure to change its zero-Covid policy and impose rigorous control measures is fueling concerns about the world’s second-largest economy and a vital engine of global growth.
A perfect storm of crises has been buffeting trading floors throughout the world for months, including China’s lockdowns, increasing inflation, Fed intentions to boost rates, high oil prices, and the war in Ukraine.
All eyes are on the Federal Reserve’s policy meeting this week, where it is expected to raise borrowing costs by half a percentage point, the biggest since 2000, and then follow up with several more hikes before the end of the year.
As it tackles more than 40-year-high inflation, some analysts anticipate it may even declare a three-quarter-point increase at some time.
However, with some pundits predicting rates as high as 3%, there are concerns that the Fed will be excessively hawkish and send the US economy into recession.
Fed boss Jerome Powell “could cement the view that 50 (basis points) is the new 25, but more worrying for stock pickers, there are lots of QE to unwind”, said SPI Asset Management’s Stephen Innes, referring to the quantitative easing bond-buying programme used by the Fed to keep rates low.
“So, the question is, how much of the impact of the balance sheet runoff” has been priced in.
A dramatic slowdown in China has exacerbated the prospect of increasing borrowing rates, with lockdowns in major cities such as Shanghai crushing output and clogging supply networks.
The country’s manufacturing activity decreased the most it has since February 2020, according to data released over the weekend, and the near future does not look positive, with officials shutting down cinemas and gyms over the May Day vacation.
Beijing signalled an easing of a severe tech crackdown on Friday, indicating more intentions to boost the economy. However, the declaration comes after several previous recent commitments, and traders have yet to see any tangible actions, with the majority preferring a gentler approach to virus control.
“We remain deeply concerned about growth,” Nomura Holdings economists said in a note.
“Despite the raft of policy measures announced by the Politburo meeting (Friday), we still believe markets should remain focused on the development of the pandemic and the corresponding zero-Covid strategy. All other policies are of secondary importance.”
Tokyo, Seoul, Mumbai, Manila, and Wellington all saw their stock markets fall.
Sydney fell as well, however Qantas gained more than 2% after announcing the world’s longest non-stop commercial flight between Sydney and London would be launched by the end of 2025.
At the open, Paris and Frankfurt were lower, however US futures were higher.
The markets in London, Hong Kong, and mainland China, as well as those in Taipei, Singapore, Bangkok, and Jakarta, were all closed.
China’s troubles, as the world’s largest crude importer, resulted in a decline in crude prices due to supply concerns, countering concerns about supplies from Russia caused by the Ukraine conflict.
European Union talks to scale back imports of oil from Russia, following embargoes by the United States and Britain, continue to provide support.
“But further gains will be limited to weaker oil demand prospects from China due to the continued expansion of lockdowns and mass testing across the region,” added SPI’s Innes.
– Key figures at around 0720 GMT –
Tokyo – Nikkei 225: DOWN 0.1 percent at 26,818.53 (close)
Hong Kong – Hang Seng Index: Closed for a holiday
Shanghai – Composite: Closed for a holiday
London – FTSE 100: Closed for a holiday
Dollar/yen: UP at 130.30 yen from 129.89 yen on Friday
Euro/dollar: DOWN at $1.0534 from $1.0550
Pound/dollar: DOWN at $1.2557 from $1.2578
Euro/pound: UP at 83.88 pence from 83.86 pence
West Texas Intermediate: DOWN 0.7 percent at $103.95 per barrel
Brent North Sea crude: DOWN 0.7 percent at $106.44 per barrel
New York – Dow: DOWN 2.8 percent at 32,977.21 (close)
