Asia-Pacific markets mixed as investor sentiment remains fragile

In our view, the risks around a recession in 2023 can’t be ignored.

Kerry Craig

Global Market Strategist, JP Morgan Asset Management

Japan’s Nikkei 225 rose 0.4% on the day to 26,431.20 while the Topix was up 0.64% to 1,867.81.

Shares of Fast Retailing were up 1.44% while robot maker Fanuc saw its stock climb 0.47%. Trade data released in the morning showed Japan ran a trade deficit after falls in the yen drove more imports.

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

Australia’s unemployment figures held steady at 3.9% in yet another signal that Australia’s Reserve Bank would, like the Fed and many other central banks, be staying on course to raise rates again. The unemployment rate has now been at 3.9% for three consecutive months but could fall to 3.5% at the end of the year, Capital Economics’ Ben Udy said.

Over in South Korea, the Kospi index gained 0.16%, finishing the trading day at 2,451.41.

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

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

Thursday’s moves follow a tumble across markets earlier this week following initial news of a strong move by the Fed and concerns of more Covid-related restrictions in mainland China.

fed rate hike

Following the rate hike in the US, Wall Street was volatile but market indexes rose to session highs after the Federal Open Market Committee took the level of its benchmark funds rate to a range of 1.5%-1.75% — the highest since just before the Covid pandemic began in March 2020.

Fed Chairman Jerome Powell also said during his afternoon press conference that, “either a 50 basis point or a 75 basis point increase seems most likely at our next meeting.”

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The Dow Jones Industrial Average snapped to 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 it was committed to bringing down inflation — currently at a high of 8.6 percent — to 2%. It also said it would continue to reduce holdings of Treasury securities and agency debt and agency mortgage-backed securities.

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

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

Crucially, while the Fed has not flagged another 75 basis point rate hike for the July meeting, it has confirmed its commitment to returning inflation back to the 2% target and this meant the Fed might be willing to sacrifice the economy to achieve this, JP Morgan Asset Management Global Market Strategist Kerry Craig says.

“In our view, the risks around a recession in 2023 can’t be ignored,” Craig said.

Clifford Bennett, chief economist at ACY Securities, said a recession was imminent now that the Fed has signaled its intention to rein in inflation and “ignored that this would cause further economic pain.”

Currencies and oil

The US dollar index, which tracks the greenback against a basket of its peers, was at 105,261 — above an earlier low of 104,707.

The Japanese yen traded at 133.74 per dollar, still stronger as compared to earlier in the week when it was at levels above 135 against the greenback. The Australian dollar was at $0.6977, retreating from an earlier high of $0.7035.

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

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