Stocks dropped in Asia on Wednesday on renewed worries about a gloomy economic outlook as monetary policy tightens in much of the world to fight high inflation.
An Asian equity index snapped a four-day climb, shedding more than 1%. US futures steadied after a tech-led tumble in the S&P 500 on Tuesday. Institutional portfolio rebalancing may be impacting trading.
China’s bourses were in the red too but the losses were relatively modest. In a surprise move, the nation Tuesday reduced quarantine times for inbound travelers. That hinted at an eventual shift away from a strategy of stamping out Covid that involves great economic cost via lockdowns and travel curbs.
The dollar held gains after rising the most in over a week in the Wall Street session. Treasuries inched up, leaving the 10-year yield at 3.16%. Oil slipped toward $111 a barrel. In cryptocurrencies, Bitcoin continued to hover around the $20,000 level.
Investors appear skeptical that the Federal Reserve can avoid a bruising economic downturn amid sharp interest-rate hikes. Evaporating consumer confidence is feeding into concerns that the US might tip into a recession.
“The Fed still believes it can thread that very fine line between tightening financial conditions while not hurting the economy too much,” Emily Weis, a macro strategist at State Street Corp., said on Bloomberg TV. “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.”
On China, the recent step to reduce quarantine for inbound travelers led to a relief rally, but the Covid-zero policy is still well entrenched, which will likely lead to regular reopening disruptions, she added.
US officials sought to play down recession risk. New York Fed President John Williams and San Francisco’s Mary Daly both acknowledged they had to cool inflation, but insisted that a soft landing was still possible.
In Europe, central bank President Christine Lagarde affirmed plans for an initial quarter-point rate increase in July but said policy makers are ready to step up action to tackle record inflation if warranted.
What to watch this week:
- US GDP, Wednesday
- ECB President Christine Lagarde, Federal Reserve Chair Jerome Powell, BOE Governor Andrew Bailey and Cleveland Fed President Loretta Mester due to speak at ECB event, Wednesday
- St. Louis Fed President James Bullard speaks, Wednesday
- China PMI, Thursday
- US personal income, PCE deflator, initial jobless claims, Thursday
- Eurozone CPI, Friday
- US construction spending, ISM Manufacturing, Friday
Some of the main moves in markets:
- S&P 500 futures rose 0.2% as of 12:47 p.m. in Tokyo. The S&P 500 fell 2%
- Nasdaq 100 futures rose 0.2%. The Nasdaq 100 fell 3.1%
- Japan’s Topix index dropped 0.8%
- Australia’s S&P/ASX 200 Index lost 1.1%
- South Korea’s Kospi index fell 1.7%
- Hong Kong’s Hang Seng Index fell 1.6%
- China’s Shanghai Composite Index fell 0.8%
- Euro Stoxx 50 futures fell 0.9%
- The Bloomberg Dollar Spot Index was steady
- The euro was at $1.0530, up 0.1%
- The Japanese yen was at 136.14 per dollar
- The offshore yuan was at 6.7047 per dollar
- The yield on 10-year Treasuries fell about one basis point to 3.16%
- Australia’s 10-year bond yield rose four basis points to 3.78%
- West Texas Intermediate crude fell 0.7% to $111.03 a barrel
- Gold was at $1 820.88 an ounce