Most markets rise as outlook fears calmed
HONG KONG: Asian investors squeezed out gains on Tuesday as they tried to recover from the previous day’s losses, but they remain gripped by fears over Europe’s worsening energy crisis, China’s economic slowdown and central bank efforts to contain surging inflation.
The dollar lost some momentum, with the euro supported ahead of an expected European Central Bank (ECB) interest rate hike and the sterling buoyed by reports that new United Kingdom Prime Minister Liz Truss would unveil plans to cut energy bills.
Russia’s decision not to resume gas supplies to Europe in retaliation for its sanctions over Ukraine sent shock waves through trading floors on monday as it ramped up expectations of a painful recession in major economies.
“This shouldn’t have been a surprise to most people, given that it was widely expected that [Vladimir] Putin would play this card at some point,” CMC Markets analyst Michael Hewson said.
“Now that he has, Russia doesn’t really have anywhere else to go, and while natural gas prices did shoot higher, they closed well off the highs of the day,” he added.
With Wall Street closed for its Labor Day, Asia had few new catalysts to drive buying.
Markets fluctuated between gains and losses in the morning, but managed to clamber up as the day progressed.
Shanghai enjoyed a healthy bounce after China unveiled fresh economy-boosting measures. But analysts warned that while a stimulus was welcomed as growth dwindles, traders were only looking for signs of an easing in the East Asian country’s zero-Covid strategy, which has left millions under lockdown and threatens economic activity.
Singapore, Seoul, Taipei, Manila, Mumbai, Bangkok and Jakarta all rose, while Tokyo was marginally up and Hong Kong inched down.
Sydney dipped after the Reserve Bank of Australia lifted interest rates to a near eight-year high and warned of more pain ahead. Wellington also slipped.
London, Paris and Frankfurt enjoyed small gains.
Global recession risk
“A lot of clients are asking: have we seen the bottom yet and are we going into a global recession?” Grace Tam of BNP Paribas Wealth Management Hong Kong told Bloomberg Television.
“We do think the risk of a global recession, especially next year, is actually quite high” and that the energy crisis “is not fully priced” into markets, she said.
The next key event for investors is the ECB’s rate decision on Thursday, with some observers tipping a 75-basis-point hike to bring down record-high consumer prices.
That is followed later in the month by the Federal Reserve’s meeting, where policymakers will debate a similar move, which would be its third lift in a row.
However, while central banks are raising borrowing costs to fight surging prices, they have little power over the cost of oil, a key driver of the rises.
On Monday, the Organization of the Petroleum Exporting Countries and its oil-producing allies — better known as OPEC+ — announced a surprise cut in output, sending both main contracts rising. The move came after the crude market fell in recent months on demand fears caused by a possible recession.
“In absolute terms, the 100,000-barrels-a-day supply cut doesn’t matter that much to global supply balances,” Noah Barrett of Janus Henderson Investors said.
“However, in terms of signaling, the move is important as it indicates that OPEC+ is watching demand very closely and is trying to manage supply to keep a floor on oil prices.”
Several countries, including the United States, had called for a rise in production, which was followed by a small lift of 100,000 barrels.
“The modest increase we got a month ago is now gone, so OPEC+ is clearly sending a message that they are not bowing to external demands,” Barrett said. “We should expect continued volatility in oil prices, with global demand indicators driving price movements.”
Brent and West Texas Intermediate were both down from Monday’s levels.