Asia Pacific markets were mixed as investor sentiment remains fragile

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

Keri Craig

Global market strategist, JPMorgan Asset Management

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

Shares of Fast Retailing rose 1.44% while robotics maker Fanuc saw its stock rise 0.47%. Trade data released in the morning showed Japan running a trade deficit after a weaker yen boosted imports.

In Australia, the S&P/ASX 200 closed 0.15% lower at 6591.10.

Australian unemployment figures held steady at 3.9% in another indication that the Reserve Bank of Australia, like the Federal Reserve and many other central banks, will stay on course to raise interest rates again. Ben Ode of Capital Economics said the unemployment rate is now 3.9% for three straight months but could drop to 3.5% at the end of the year.

In South Korea, the Kospi Index rose 0.16%, ending the trading day at 2,451.41.

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

The Dow Jones Industrial Average, S&P 500 and Nasdaq-100 futures were also trading in negative territory during the afternoon session during Asian trading hours on Thursday.

Thursday’s moves come on the heels of markets faltering earlier this week after initial news of a strong move by the Federal Reserve and fears of more Covid-related restrictions in mainland China.

Fed rate hike

After raising interest rates in the US, Wall Street was volatile but market indicators rose to session highs after the Federal Open Market Committee raised the benchmark interest rate to the 1.5%-1.75% range – the highest level since before Covid. The epidemic started in March 2020.

Fed Chair Jerome Powell also said during his afternoon press conference that “a 50bps or 75bps increase looks likely at our next meeting.”

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The Dow Jones Industrial Average snapped a five-day losing streak, as it jumped 303.70 points, or 1%, to close at 30,668.53. The S&P 500 rose 1.46% to 3789.99 while the Nasdaq Composite rose 2.5% to end the day at 11099.15.

The Fed said in a statement that it was committed to bringing inflation – which is currently high at 8.6 percent – to 2 percent. It also said it would continue to reduce its holdings of Treasury securities, agency debt and agency mortgage-backed securities.

Kevin O’Leary, chairman of O’Shares ETFs, says a 75 basis point rate hike is a signal that the Fed has “a spike in inflation” now.

He added that a 1% hike would be better, but for now, all signs point to “light” Fed inflation.

Crucially, while the Fed made no mention of another 75 basis point rate hike at its July meeting, it reiterated its commitment to bring inflation back to the 2% target and that means the Fed may be willing to sacrifice the economy to make it happen, JP Kerry says Craig, global market strategist at Morgan Asset Management.

“From our point of view, the risks surrounding a 2023 recession cannot be ignored,” Craig said.

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

Currency and oil

The US Dollar Index, which measures the greenback against a basket of peers, was at 105261 – higher than the previous low of 104707.

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

Oil prices rose in Asian afternoon trading hours, with international benchmark Brent crude futures up 0.47% to $119.07 a barrel. US crude futures also rose 0.51% to $115.90 a barrel.

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