Tokyo, Hong Kong and Sydney were all down over 1%
HONG KONG (AFP – Asian markets continued their downward spiral Wednesday, following a brief respite on Tuesday. This was as traders prepared for what many believe will be a third consecutive jumbo interest rate increase by the Federal Reserve.
The fear of a recession in major countries has weighed on equity markets around the globe. Central banks have increased borrowing costs to combat high inflation, which has been made worse by the Ukraine war and its supply chain snarls.
Related: Japan is unlikely to interfere to stop the weak yen, according to a Asian tarde poll of analysts.
Four regions in Russian-held Ukraine announced that they would hold weekend referendums about annexation to Moscow. This could escalate the conflict, as President Vladimir Putin could claim that an attack in these regions was an attack against Russia.
For now, all eyes are on Washington. The Fed will be concluding its most recent policy meeting. Most analysts predict a 75-basis-point increase, though some experts have suggested a percentage-point jump.
Investors are attracted to the US central bank’s forecast, post-meeting comments by boss Jerome Powell, and the price hike, which have been largely priced in.
Fiona Cincotta from City Index stated that “Volumes remain low and the mood cautious. Few look to take on large position before hearing what Fed officials say and where policymakers see rates going by end of the hiking cycle.”
“This is what will drive markets, not the rate increase… but what the Fed intends to do next.”
Fed officials have maintained for months that they will not change their hawkishness if inflation falls.
Many have warned that interest rates will not fall anytime soon and could even be as late as 2024. A recession is also more likely in the United States and other major economies.
– Is it a ‘long and ugly’ recession? –
This week, other central banks will also meet.
Officials in Sweden announced a one-percentile increase on Tuesday. The United Kingdom and Switzerland will likely announce further increases.
Although there are many opinions on the severity of any contraction, Nouriel Roubini who predicted the 2008 financial meltdown said that he foresaw a “long, ugly” recession at the end. This would likely not end until 2023, with severe consequences to equities.
He said that even in a recession, the S&P 500 could fall by 30%. “A real hard landing,” which he had predicted, could lead to it losing 40%.
Early trade saw Asian markets revert to Tuesday’s rate bounce and were in the red again.
Related: Asian stocks make up for recent losses, but the Fed’s jitters keep gains from going higher.
Tokyo, Hong Kong and Manila all fell more than 1%, while losses were also reported in Shanghai, Seoul and Wellington.
The weakness can be partly explained by the slowdown in China. This country has been hit hard by a series Covid-linked lockdowns this past year, which have resulted in tens to millions of people being shut out and factories closing down for months.
The Asian Development Bank, in light of the Ukraine war and rate rises, has cut its 2022 growth forecasts for developing Asia on Wednesday and warned that there are “global headwinds” to recovery.
