Asia’s stock markets went down on Wednesday as hopes for a soft landing in the U.S. economy were dashed by reality and investors became less excited about China reopening.
The S&P 500 fell for the fourth day in a row on Tuesday, putting an end to a rally that had been going on for almost two months. Oil prices also dropped sharply, and Brent futures are back to where they were at the beginning of the year at $79.50 a barrel.
The broadest index of Asia-Pacific stocks outside of Japan used by MSCI fell 0.1%, and the Nikkei in Japan fell 0.7%.
Shane Oliver, head of the investment strategy at Australia’s AMP, said, “Some of the optimism that had driven the rally is being put to the test” (OTC: AMLTF).
Related:Â Inflows of foreign money into Asian stocks are at their highest level in two years.
“We might be moving from a situation where we worry about inflation and interest rates to one where we worry about growth slowing and profits going down.”
S&P 500 futures rose 0.2%. European futures rose 0.3%. China’s trade data were much worse than expected. Both imports and exports had their biggest monthly drops since 2020, which doesn’t bode well for the country’s chances of recovering.
India’s central bank was the latest to start slowing the rate of rate hikes. On Wednesday, it raised its key lending rate by 35 basis points to 6.25%, which was less than the three 50-bp hikes it had given before. The next country to make a rate decision in Canada, which is expected to do so at 15:00 GMT.
The big banks in the U.S. are expecting the economy to get worse next year as inflation and rate hikes hurt consumer demand. On Tuesday, top executives at Goldman Sachs (NYSE: GS), J.P. Morgan, and Bank of America (NYSE: BAC) all sounded pessimistic.
David Solomon, the CEO of Goldman Sachs, said, “The growth of the economy is slowing.” “When I talk to our clients, I get the impression that they are very careful.”
Longer-term bonds rose because of worries about growth, and the U.S. dollar, which is seen as a safe haven, stopped falling.
Overnight, the yield on benchmark 10-year U.S. treasuries fell 8.6 basis points to 3.513%. It was last at 3.5460%. That is more than 80 basis points less than the yield on a two-year bond because investors think that high rates will slow down growth.
Traders in Asia are very interested in the possibility that China will loosen its COVID-19 controls and what that will mean for the world’s second-largest economy and regional demand.
On Tuesday, Beijing residents didn’t have to take tests to get into parks, supermarkets, offices, and airports.
Geoff Yu, a strategist at BNY Mellon (NYSE:BK), said, “This alone will start to make a difference if it’s done all over the country.”
“But how you do it matters,” he said.
“And there aren’t many examples of what the country wants to do.” The world will need to be ready for the inflationary effects that have come with every major reopening.
Oil prices have been going down because people don’t think there will be as much demand for it. They are now more than 40% below their peak of nearly $140 a barrel, which happened right after Russia invaded Ukraine.
On the foreign exchange markets, the dollar was trying to get back to where it was before the news of a slowdown in U.S. rate hikes sent it tumbling.
Related: Stocks have declined the most in two weeks while the dollar has risen on positive U.S. data.
It was stable at 137.28 yen in Asia on Wednesday, and it traded at $1.0467 per euro. Even though Australia’s growth in the third quarter was a little less than expected, the Australian dollar was mostly stable at $0.6696.
The Canadian dollar stayed around 1.3644 per dollar before the Bank of Canada was expected to raise rates later on Wednesday. The index for the U.S. dollar was at 105.5.
Spot gold stayed the same at $1,773 an ounce, and bitcoin stayed the same at $17,000. Cryptocurrency sentiment was weak as the effects of FTX’s collapse spread through the market.
