Asia stocks continued their retreat on Friday and were headed for their worst week in two months after a slew of central banks raised interest rates and warned there were more hikes to come next year.
Interest rates went up in Europe, Britain, Switzerland, Denmark, Norway, Mexico and Taiwan on Thursday, following a US rate hike on Wednesday, with central bankers vowing to keep on raising rates until inflation is tamed.
That fuelled recession worries across the region with Japan’s Nikkei first to blink, falling to a one-week low.
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Tokyo’s benchmark share average tracked the sharp declines overnight on Wall Street, with investors rattled by the interest rate hikes.
The Nikkei 225 index dropped 1.87%, or 524.58 points to end at 27,527.12. The broader Topix index fell 1.20%, or 23.69 points, to 1,950.21.
US stock indexes had closed sharply lower overnight, with each of the major averages suffering their biggest one-day percentage drop in weeks, as fears intensified that the Federal Reserve’s aggressive rate hikes to battle inflation could lead to a recession.
Chip-related Tokyo Electron and Advantest slipped 4.1% and 3.35% on the Nikkei, respectively. Technology investor SoftBank Group lost 3.58%.
In China, where markets are uncertain which way to jump as the country reopens after three years of Covid curbs, relief at the apparent resolution of a long-running accounting access dispute with the United States was not enough to drive a rally.
The Hang Seng enjoyed a minor bump from its tech stocks thanks to the auditing breakthrough between the US and China but those gains were capped by the gloomy global inflation picture.
The Hang Seng Index gained 0.42%, or 82.08 points, to 19,450.67.
But the Shanghai Composite Index dipped 0.03%, or 0.79 points, to 3,167.86, while the Shenzhen Composite Index on China’s second exchange dropped 0.75%, or 15.39 points, to 2,039.52.
Indian stocks slipped with Mumbai’s signature Nifty 50 index down 0.76%, or 140.05 points, at 18,274.85.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8% and was down 2.3% on the week.
Hawkish Central Banks
World stocks were down 1.2% this week after, overnight on Wall Street, the S&P 500 had its biggest percentage drop in more than a month as it fell 2.5%. S&P 500 futures were flat and European futures up 0.3%.
“Central banks are still hawkish, still intent on raising rates,” said Alvin Tan, Asia currency strategist at RBC Capital Markets in Singapore, while markets still price in US rate cuts in the second half of next year.
“So there’s a tension … and that dichotomy has been emphasised over the past 48 hours by both the Fed and the European Central Bank.”
On Thursday the European Central Bank made a 50 basis point hike like the Fed, with both opting for a smaller increase than previously, but it flagged there were more hikes to come than investors had expected.
The Bank of England announced a 50 bp hike, too, and forecast more.
The prospect of higher near-term rates also has investors nervous about longer-run growth as there are growing signs that a worldwide slowdown is gathering steam.
Japan’s manufacturing activity shrank at the fastest pace in more than two years in December, a corporate survey showed on Friday. US retail sales fell more than expected in November as some of the consumption momentum ebbs away from the economy.
Ten-year Treasuries rallied a bit on Thursday before steadying in Asia at 2.4736 per cent during Friday. Larger moves were in currencies, where the dollar arrested its recent slide with its sharpest jump in two months.
Gold fell against the rising dollar, dropping 1.7% to sit at $1,777 an ounce in Asia. Oil gave back some recent gains with Brent crude futures down 1.8% overnight and steady on Friday at $80.94 a barrel.
Key figures
Tokyo – Nikkei 225 < DOWN 1.87% at 27,527.12 (close)
Hong Kong – Hang Seng Index > UP 0.42% at 19,450.67 (close)
Shanghai – Composite < DOWN 0.03% at 3,167.86 (close)
London – FTSE 100 < DOWN 0.44% at 7,393.68 (0940 GMT)
New York – Dow < DOWN 2.25% at 33,202.22 (close)
- Reuters with additional editing by Sean O’Meara
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