Asian markets fall on fears of rise in oil and inflation
Analysts said investors were unlikely to get any respite until crude, a key driver of inflation since Russia’s invasion of Ukraine, was brought under control.
Natalia Kolesnikova
text size
Asian markets fell on Thursday as oil surged, raising fears of inflation, with top officials warning of more pain as the Ukraine war continues to push up prices and put further pressure on the global economy.
Buyers on Wall Street retreated again after data showed US crude and gasoline stockpiles sank as the summer driving season begins and key OPEC member demand will rise further with China’s reopening.
The disappointment was further compounded by the OECD’s sharp downgrade in its global growth outlook and a doubling of its inflation forecast.
The gloomy mood was only a short distance from the optimism that Beijing’s technical action was nearing its end.
Contracts for both main crude oil jumped more than two per cent to three-month highs on Wednesday after data showed that reserves at the largest US storage depots had seen a major fall last week, suggesting that higher Prices weren’t deterring people from driving.
Meanwhile, White House press secretary Karine Jean-Pierre said officials expected Friday’s consumer price index to be “advanced”.
The remarks raised hopes that the Federal Reserve would stick to its brisk path and raise interest rates by half a point for at least three more meetings this year as it tries to bring inflation down from a four-decade high.
Analysts said investors were unlikely to get any respite until crude, a key driver of inflation since Russia’s invasion of Ukraine, was brought under control.
“Given the impact of inflationary expectations, a pullback in crude will be critical to any protracted risk rally,” said Stephen Innes of SPI Asset Management.
“And as for intent on frontloading rates for the central bank fraternity, chapter two of the current playbook risks a material decline in housing, consumer confidence and consumption that will ultimately drive their respective economies into recession and Stock will falter.
“So unless we reach peak inflation, which will trigger a less hawkish Fed and less recessionary odds, it could be a gloomy summer for global stock pickers.”
He said prices were expected to rise further as China emerges from months of lockdown, a sentiment with which UAE Energy Minister Suhail Al-Mazrouei agreed.
“With the pace of consumption we have, we are nowhere near the peak because China is not back yet,” he said at a conference on Wednesday. “China will come with more consumption.”
Uneasiness about rising prices and rates saw European markets as well as all three main indices rallied on Wall Street on Thursday with a focus on the European Central Bank’s policy meeting.
It is expected that the ECB will begin to wind down its massive bond-buying program and signal that rate hikes were in the pipeline.
Asian traders followed suit on Thursday as well.
Hong Kong fell, even as tech firms continued to benefit on hopes that China’s action was almost over, while Shanghai, Sydney, Seoul, Singapore, Taipei, Manila and Wellington were also in the red.
Tokyo, however, gained as the yen sat at a two-decade low, driven by widening monetary policies from the hawkish United States and Japan, which show no signs of raising rates.
Investors were shocked by a report by the Organization for Economic Co-operation and Development, which said it had lowered its 2022 growth outlook to three percent – predicted 4.5 percent in December – because of the Ukraine war.
It doubled its inflation forecast to 8.5 percent, a 34-year high.
“The world is prepared to pay a heavy price for Russia’s war against Ukraine,” wrote OECD chief economist and deputy secretary general Laurence Boone.
And Anna Han at Wells Fargo Securities told Bloomberg Television: “We are of the view that the likelihood of a recession is 40 percent or more by the end of 2023.”
TOKYO – Nikkei 225: UP 0.2 percent at 28,278.45 (break)
Hong Kong – Hang Seng Index: down 0.7 percent to 21,851.49
Shanghai – overall: down 0.6 percent to 3,245.66 . Feather
Brent North Sea crude: UP 0.1 percent $123.72 per barrel
West Texas Intermediate: UP 0.1 percent $122.20 per barrel
Dollar/Yen: UP to 134.36 yen from 134.29 yen late Tuesday
EUR/dollar: down from $1.0720 to $1.0717
Pound/Dollar: Down from $1.2535 to $1.2524
Euro/Pound: UP 85.54 pence to 85.57 pence
New York – Dow: 0.8 percent to 32,910.90 (close to)
LONDON – FTSE 100: down 0.1 percent at 7,593.00 (close)
