The Japan Times - Equity market losses driven by recession, inflation fears

The hefty selling came after more than a week of gains across the world caused by hopes that any signs of contraction could give central banks room to ease up on their pace of monetary tightening.

The fluctuations on trading floors show how tough it has become for investors to find their feet, just as financial policymakers struggle to find a balance between containing prices and maintaining economic growth.

Wednesday’s selling came after New York's three main indexes tanked in reaction to data showing confidence among US consumers -- who are a crucial driver of the world's top economy -- had fallen to its lowest level in more than a year.

The mood-sapping reading was partly driven by a feeling inflation would persist, suggesting consumers are not sure the Federal Reserve's aggressive efforts to tame inflation will work.

The news overshadowed a surprise move by China to slash the quarantine period for incoming travellers, raising hopes for further relaxations that can allow the country's giant economy to recover more quickly.

Hong Kong led losses as tech firms took a beating, while Tokyo, Shanghai, Sydney, Seoul, Mumbai, Manila, Taipei, Jakarta, Bangkok and Wellington were also well down.

London, Paris and Frankfurt opened sharply lower,

Top Fed officials on Tuesday tried to play down the chances of a recession, with the heads of the Fed in San Francisco and New York saying they were upbeat a soft landing could be achieved.

"I see us tapping on the brakes to slow to a more sustainable pace, rather than slamming on the brakes, going over the handlebars and having the proverbial recession," San Francisco's Mary Daly told an online event hosted by LinkedIn.

"I wouldn't be surprised, and it's actually in my forecast, that growth will slip below two percent, but it won’t actually pivot down into negative territory for a long period of time."

- 'Not looking pretty' -

But analysts were more sceptical, with Sim Moh Siong at Bank of Singapore saying "low US consumer expectations suggest weaker growth in (the second half of 2022) as well as growing risk of recession by year end".

The Conference Board's chief economist Dana Peterson warned the United States will likely see a recession in late 2022.

And Emily Weis, at State Street Corp, said: "The Fed still believes it can thread that very fine line between tightening financial conditions while not hurting the economy too much.

"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."

Meanwhile there was a word of warning for the outlook as companies begin to feel the pinch.

"With investors laser-focused on US growth and inflation data, both of which tanked stocks (Tuesday), do not forget earnings cuts are now coming through -- the red ink is flowing through stocks, sectors, and aggregated strategy models," said Stephen Innes at SPI Asset Management.

"All regions, countries, industries, and stocks are getting printed red with broad strokes. It is not looking pretty."

Oil prices dipped though remain elevated following a run-up in recent days on expectations that demand will continue to rise -- despite recessionary talk -- and supplies remain tight owing to the ban on imports from Russia.

And while G7 leaders agreed to work on a price cap for Russian oil as part of efforts to cut the Kremlin's revenues, observers warned that will not likely have a massive impact on prices.

"The easing of China's zero-Covid policy helped oil to the third day of gains following a decent correction in recent weeks," said Craig Erlam at OANDA.

"As did reports that the UAE and Saudi Arabia are producing near capacity, in stark contrast to claims that both are holding back and could do more."

He added that OPEC and other major producers were 2.7 million barrels per day below target in May, "taking the total shortfall under the agreement to more than half a billion".

"Even sanctions being lifted on Iran and Venezuela can't do much against that backdrop. It may well take a recession to return oil prices to sustainable levels any time soon," he warned.

- Key figures at around 0720 GMT -

Tokyo - Nikkei 225: DOWN 0.9 percent at 26,804.60 (close)

Hong Kong - Hang Seng Index: DOWN 2.5 percent at 21,866.95

Shanghai - Composite: DOWN 1.4 percent at 3,361.52 (close)

London - FTSE 100: DOWN 0.5 percent at 7,289.08

Dollar/yen: DOWN at 135.95 yen from 136.20 yen Friday

Pound/dollar: DOWN at $1.2177 from $1.2187

Euro/dollar: DOWN at $1.0492 from $1.0525

Euro/pound: DOWN at 86.16 pence from 86.32 pence

West Texas Intermediate: DOWN 0.6 percent at $111.11 per barrel

Brent North Sea crude: DOWN 0.8 percent at $117.00 per barrel

New York - Dow: DOWN 1.6 percent at 30,946.99 (close)

T.Shimizu--JT