Interest rate hikes and a faltering Chinese economy impacted on investor mood in most Asian markets on Monday. Following significant losses on Wall Street last week, oil prices rose and US futures plummeted. Benchmarks fell across the board. The Jakarta benchmark dropped 4%. Market participants were waiting for Chinese trade statistics for April to see how much the limitations imposed to stop the spread of COVID-19 infections had harmed the economy. “The global investment community is slowly waking up to the idea we’ve been touting for a long time: that there’s a post-COVID-recovery-euphoria hangover,’ coupled with associated inflation, and now a European war and fresh inflation impetus, as well as the closure of the world’s largest port,” said Clifford Bennett, Chief Economist at Capital Economics.
Shares closed lower on Wall Street on Friday with the market’s fifth straight weekly decline. Worries are simmering the that despite strong US employment trends, the Federal Reserve’s efforts to tame inflation by raising interest rates may send the American economy into a recession. The increase Wednesday in the Fed’s key short-term rate raised it by 0.5 percentage points to a range of 0.75 percent to 1 percent, the highest level since the pandemic struck two years ago. The S&P 500 fell 0.6 percent to 4,123.34. The Dow dropped 0.3 percent to 32,899.37. The Nasdaq gave up 1.4 percent to 12,144.66. Smaller companies fell more than the broader market. The Russel 2000 slid 1.7 percent to 1,839.56. The Fed is hoping to raise rates and slow the economy enough to snuff out the highest inflation in four decades, but it risks choking off growth if it goes too far or too quickly. Fed chair Jerome Powell has reassured investors by saying the central bank was not “actively considering” an even bigger jump of 0.75 percentage points at its next meeting. In energy trading, benchmark US crude gained 43 cents to USD 110.20 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the basis for pricing oil for international trading, rose 77 cents to USD 113.16 a barrel. In currency trading, the US dollar rose to 130.98 Japanese yen from 130.55 yen. The euro cost USD 1.0510, down from USD 1.0545.
Japan’s benchmark Nikkei 225 lost 2.2 percent in morning trading to 26,410.30. South Korea’s Kospi dipped 0.9 percent to 2,621.24. Australia’s S&P/ASX 200 dropped 1.3 percent to 7,110.50. The Shanghai Composite was little changed, falling less than 0.1 percent to 3,001.62. Markets were closed in Hong Kong for a national holiday. Investors are watching for the outcome of the presidential election in the Philippines, although it remains unclear how economic policies might change. The son of long-ago overthrown Philippine dictator Ferdinand Marcos is the top contender in Monday’s vote, based on most voter-preference surveys. Apart from concerns about inflation and coronavirus restrictions, the war in Ukraine is still a major cause for uncertainty. More than 60 people were feared dead after a Russian bomb flattened a school being used as a shelter, Ukrainian officials said. Moscow’s forces pressed their attack on defenders inside Mariupol’s steel plant in an apparent race to capture the city ahead of Russia’s Victory Day holiday Monday. “Russia’s Victory Day today will also bring geopolitical risks back into the limelight as well. President Putin is likely to reiterate his justification for the Ukraine war but markets may be watching for any further efforts to ramp up military operations to secure the war,” said Yeap Jun Rong, market strategist at IG in Singapore.
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