Asian stocks set to come under pressure as recession fears sink oil: Markets wrap

06 Jul , 2022 By : Kanchan Joshi

Stocks in Asia are set to come under pressure Wednesday after fears of an economic downturn tightened their grip on financial markets, sinking oil and spurring rallies in the dollar and Treasuries.

Futures pointed to falls for bourses in Japan, Australia and Hong Kong. US contracts fluctuated after a volatile Wall Street session left stocks higher but with little conviction that global shares are closer to escaping a bear market.

The prevailing worries about recession amid a campaign of monetary tightening to fight high inflation spurred a plunge in oil to under $100 a barrel. Crude was just above that level in early Asian trading. Copper hit a 19-month low.

Demand for havens bolstered Treasuries and pushed a dollar gauge to the highest level in more than two years. There’s growing talk of the greenback reaching parity with the euro.

Slivers of comfort such as the possible rowing back of some US tariffs on Chinese goods are proving no match for the dour mood in markets. A looming energy crisis in Europe amid Russia’s war in Ukraine and threats to company earnings as the US economy slows are among the risks investors face.

“Markets are caught between two opposing forces and that’s the place we are going to be in for the next few months," Diana Amoa, chief investment officer for long-biased strategies at Kirkoswald Asset Management, said on Bloomberg Television. “We go from trading lower growth to trading high inflation."

The odds of a US recession in the next year are now 38%, according to latest forecasts from Bloomberg Economics. Bond traders are now penciling in a policy turnaround by the Federal Reserve in the coming year, with current hawkishness giving way to interest-rate cuts in the middle of 2023.

Elsewhere, the pound held losses sparked by turmoil in British politics. Boris Johnson’s premiership is on the brink after the resignation of two of the most senior Cabinet members, but he’s digging in as UK prime minister.

In China, Shanghai launched mass testing for Covid in nine districts after detecting cases the past two days, fueling concerns that the financial hub may once again find itself locked down in pursuit of Covid Zero.