Stock markets hit as recession fears darken hope of China’s reopening

Natalie Portman
By Natalie Portman 5 Min Read

Most stocks sold off more Wednesday, while oil posted losses on growing fears that the Federal Reserve’s monetary tightening will push the US economy into a recession.

The decline followed another day in the deep red for New York’s three major indexes after heads of major Wall Street banks warned of tough times in 2023.

JPMorgan Chase boss Jamie Dimon pointed to a “mild to hard recession” and Goldman Sachs’ David Solomon said jobs and wages would be hit, while Morgan Stanley and Bank of America were also uneasy for the prospects.

The comments added to the pessimistic mood that swept through trading floors earlier in the week after better-than-expected jobs reports and the giant US services sector fueled concerns that the Fed will have to push interest rates higher than hoped.

Markets had rallied healthily ahead of Friday’s jobs data after a weaker-than-expected inflation reading for October suggested the nearly year-long tightening campaign was finally affecting prices.

“Any hopes that the Fed will become more accommodative in the months ahead have been dashed significantly as the vast US services sector is where sticky inflation stalls,” said SPI Asset Management’s Stephen Innes.

He added that the latest readings suggest rates will exceed five percent before the Fed stops hiking, while several observers have suggested they won’t be cut until 2024.

Hong Kong, Tokyo, Shanghai, Sydney, Seoul, Singapore, Mumbai, Bangkok, Manila and Jakarta have all fallen. London opened slightly higher, Paris was flat and Frankfurt slipped.

And Lauren Goodwin, of New York Life Investments, has foreseen further difficulties for the markets.

“We haven’t seen the stock price bottom yet,” he said, according to Bloomberg News. “While this phase of equity market volatility should end in the coming months, earnings have not yet adjusted to a recessionary environment.”

The bleak outlook overshadowed China’s moves to roll back some of its tough Covid rules that traders hope will kickstart the world’s number-two economy, which has been hit by months of lockdowns and other containment measures this year.

Demonstrating the impact the zero-Covid strategy has had, data on Wednesday showed imports, exports and imports plummeting much more than expected in November.

Officials on Wednesday announced a nationwide relaxation of restrictions for the first time, including a reduction in mandatory PCR testing and the ability to quarantine some positive cases at home.

But as the country returns to normal, Zhiwei Zhang, of Pinpoint Asset Management, warned it will take time.

“The zero-Covid policy has been relaxed, but mobility hasn’t recovered much nationally,” he said. “I expect exports to remain weak in the coming months as China goes through a bumpy reopening process.

“As global demand weakens in 2023, China will have to rely more on domestic demand.”

And other observers said the recent reopening-fueled rally may have gone too far and that traders are now stepping back as they contemplate a likely spike in infections in the country.

Oil prices remained stuck at lows not seen in about a year as demand expectations plummeted.

Brent fell below $80 for the first time since January on Tuesday, while WTI hit its lowest since December after plunging from a 14-year high of around $140 hit in March after Russia invaded Ukraine . Both contracts were only slightly higher in Asian trade.

“The crude demand outlook is becoming dashed as we are in a slowdown in virtually every major economy,” said OANDA’s Edward Moya.

“Supplies look plentiful in the near term and this is making everyone hesitate on what has been one of the easier trades of the year.”

Key figures around 0820 GMT

Tokyo – Nikkei 225: DOWN 0.7% to 27,686.40 (close)

Hong Kong – Hang Seng Index: DOWN 3.2% to 18,814.82 (close)

Shanghai – Composite: DOWN 0.4% to 3,199.62 (close)

London – FTSE 100: +0.5% to 7,558.09

Euro/dollar: DOWN to $1.0458 from $1.0470 on Tuesday

Dollar/yen: up to 137.48 yen from 137.04 yen

Pound/Dollar: DOWN to $1.2126 from $1.2133

Euro/Pound: DOWN to 86.20 pence from 86.26 pence

West Texas Intermediate: +0.2% to $74.38 a barrel

Brent crude oil from the North Sea: +0.3% to 79.59 dollars a barrel

New York – Dow: DOWN 1.0% to 33,596.34 (close)

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