HomeWorld NewsAsia-Pacific markets are mixed as investor sentiment remains fragile

Asia-Pacific markets are mixed as investor sentiment remains fragile

In our view, the risks associated with a recession in 2023 cannot be ignored.

Kerry Craig

Global Market Strategist, JP Morgan Asset Management

The Japanese Nikkei 225 rose 0.4% on the day to 26,431.20 while the Topix rose 0.64% to 1,867.81.

Shares of Fast Retailing rose 1.44% while robot maker Fanuc saw its stock climb 0.47%. Trade data released in the morning showed that Japan ran a trade deficit after the fall in the yen led to an increase in imports.

In Australia, the S&P/ASX 200 closed down 0.15% at 6,591.10.

Unemployment figures in Australia remained stable at 3.9%, another sign that the Reserve Bank of Australia, like the Fed and many other central banks, would stay the course to raise rates again. The unemployment rate is now at 3.9% for three consecutive months but could fall to 3.5% by the end of the year, said Ben Udy of Capital Economics.

In South Korea, the Kospi index gained 0.16%, ending the trading day at 2,451.41.

MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 0.91%.

Futures for the Dow Jones Industrial Average, S&P 500 and Nasdaq-100 also traded in negative territory during the afternoon trading hours in Asia on Thursday.

Thursday’s moves follow a tumble in markets earlier this week after early news of a strong Fed move and concerns over more Covid-related restrictions in mainland China.

Fed rate hike

Following the US rate hike, Wall Street was volatile, but equity indices hit session highs after the Federal Open Market Committee lowered its benchmark funds rate level to a range of 1 .5% to 1.75% – the highest since just before the Covid Pandemic began in March 2020.

Fed Chairman Jerome Powell also said at his afternoon press conference that “either a 50 basis point increase or a 75 basis point increase looks very likely in our next meeting”.

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The Dow Jones Industrial Average ended a five-day losing streak, jumping 303.70 points, or 1%, to close at 30,668.53. The S&P 500 rose 1.46% to 3,789.99 while the Nasdaq Composite gained 2.5% to end the day at 11,099.15.

The Fed said in a statement that it was committed to bringing inflation – currently at a peak of 8.6% – to 2%. He also said he would continue to reduce holdings of Treasuries, agency debt and agency mortgage-backed securities.

Kevin O’Leary, chairman of O’Shares ETFs, said the aggressive 75 basis point rate hike is a signal that the Fed now has inflation “the bull by the horns.”

A 1% hike would be better but for now, all signs point to the Fed “lassoing” inflation, he added.

Importantly, while the Fed did not signal another 75 basis point rate hike for the July meeting, it confirmed its commitment to bringing inflation back to the 2% target and that meant the Fed might be willing to sacrifice economics to get there, JP Kerry Craig, global market strategist at Morgan Asset Management, says.

“In our view, the risks of a recession in 2023 cannot be ignored,” Craig said.

Clifford Bennett, chief economist at ACY Securities, said a recession was imminent now that the Fed signaled its intention to bring inflation under control and “was unaware that this would cause further economic hardship.”

Currencies and oil

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 105.261 – above a previous low of 104.707.

The Japanese yen was trading at 133.74 to the dollar, even stronger than earlier in the week, when it was trading at levels above 135 against the greenback. The Australian dollar was at $0.6977, falling from an earlier high of $0.7035.

Oil prices were higher in the afternoon trading hours in Asia, with international benchmark Brent futures up 0.47% at $119.07 a barrel. U.S. crude futures also rose 0.51% to $115.90 a barrel.

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