Asian stocks turned lower, without averting recession risks

People pass an electronic screen displaying Japan’s Nikkei stock price index inside a conference hall in Tokyo, Japan, June 14, 2022. REUTERS/Issei Kato

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  • Asian stock markets:
  • S&P futures lose early gains, Nikkei falls more than 1%
  • The Fed Chairman is expected to give a hawkish testimony this week
  • Euro falls after French elections upset Macron

SYDNEY (Reuters) – Asian shares were unable to sustain a rare recovery on Monday as Wall Street futures pared early gains amid fears that the US Federal Reserve this week will reaffirm its commitment to fighting inflation no matter how much interest rate hikes are needed.

The euro also fell slightly after French President Emmanuel Macron lost control of the National Assembly in Sunday’s legislative elections, a major setback that could push the country into political paralysis. Read more

Trade weakened due to the US holiday and Nasdaq futures quickly settled, having risen more than 1% in one stage, while S&P 500 futures fell 0.2%. EUROSTOXX 50 futures are down 0.6%, FTSE futures are down 0.3%.

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The S&P 500 fell nearly 6% last week to trade 24% below its January high. Analysts at Bank of America noted that this was the 20th bear market in the past 140 years and the average peak-to-bottom decline of the bears was 37.3%.

Investors are hoping it won’t match the 289-day average, since it won’t expire until October 2022.

MSCI’s largest index of Asia Pacific shares outside Japan (.MIAPJ0000PUS) lost 0.8% and the Nikkei Tokyo (.N225) lost 1.4%.

China’s premium companies (.CSI300) have held their ground, perhaps with the help of news that President Joe Biden was considering removing some tariffs on China. Read more

Concerns loom that major central banks will have to tighten so hard to contain hyperinflation that it will push the world into recession.

“Market volatility remained elevated as the VIX saw its highest weekly close since late April, a topic that goes beyond equities with a sharp rise in foreign currencies and interest rate volatility along with broader credit spreads,” said Rodrigo Cattrell, strategist at NAB.

“At this point it’s hard to see a shift in fortunes until we see evidence of material ease in inflationary pressures.”

Rest seems unlikely this week as UK inflation figures are expected to show another alarmingly high reading which could push the BoE to walk faster.

FED goes unconditional

A whole group of central bankers is also on the speakers’ agenda this week, led by potentially hawkish testimony from Federal Reserve Chair Jerome Powell before the House of Representatives on Wednesday and Thursday.

The Fed pledged last week that its commitment to contain inflation is “unconditional,” while Federal Reserve Governor Christopher Waller said on Saturday he would support another 75 basis point increase in July. Read more

Analysts at Nomura warned: “With growth momentum slowing rapidly and the Fed’s commitment to restore price stability, we believe a mild recession beginning in the fourth quarter is now more likely than others.”

“Financial conditions are likely to tighten further, consumers will experience a significant negative sentiment shock, energy and food supply disruptions will worsen, and foreign growth prospects will deteriorate.”

The optimistic outlook keeps the dollar at 104.660 and near a two-decade high from last week at 105.790.

The Euro fell slightly after the French elections at $1.0490, still uncomfortably close to last week’s low of $1.0357.

The yen remained under broad pressure as the Bank of Japan steadfastly stuck to its ultra-easy policies even as all of its peers in the developed world took steps to tighten policy. The dollar settled at 135.00 yen, after hitting its highest level since 1998 last week.

Bitcoin fell 3% to $19,897, after rebounding sharply over the weekend amid talk of one big buyer.

Dollar strength has kept gold in a tight sideways pattern for the past month or so, and it was last stuck at $1,836 an ounce.

Oil prices fell again after a sharp decline late last week amid concerns that higher energy prices are raising the risks of a global recession that would eventually curb demand.

Brent crude fell 70 cents to $112.42, while US crude lost 66 cents to $108.90 a barrel.

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Reporting from Wayne Cole. Editing by Shree Navaratnam by Sam Holmes

Our Standards: Thomson Reuters Trust Principles.

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