HONG KONG, June 29(ABC): Fears of a recession caused by sharp interest rate hikes aimed at fighting soaring inflation sent Asian markets tumbling Wednesday, tracking a sharp drop on Wall Street.
The hefty selling came after more than a week of gains across the world caused by hopes that any signs of contraction could give central banks room to ease up on their pace of monetary tightening.
The fluctuations on trading floors show how tough it has become for investors to find their feet, just as financial policymakers struggle to find a balance between containing prices and maintaining economic growth.
Wednesday’s selling came after New York’s three main indexes tanked in reaction to data showing confidence among US consumers — who are a crucial driver of the world’s top economy — had fallen to its lowest level in more than a year.
The mood-sapping reading was partly driven by a feeling inflation would persist, suggesting consumers are not sure the Federal Reserve’s aggressive efforts to tame inflation will work.
The news overshadowed a surprise move by China to slash the quarantine period for incoming travellers, raising hopes for further relaxations that can allow the country’s giant economy to recover more quickly.
In early Asian trade, Hong Kong, Tokyo, Shanghai, Sydney, Seoul, Taipei, Jakarta and Wellington were all well down.
Top Fed officials on Tuesday tried to play down the chances of a recession, with the heads of the Fed in San Francisco and New York saying they were upbeat a soft landing could be achieved.
“I see us tapping on the brakes to slow to a more sustainable pace, rather than slamming on the brakes, going over the handlebars and having the proverbial recession,” San Francisco’s Mary Daly told an online event hosted by LinkedIn.
“I wouldn’t be surprised, and it’s actually in my forecast, that growth will slip below two percent, but it won’t actually pivot down into negative territory for a long period of time.”
– Threading a fine line –
But analysts were more sceptical, with Sim Moh Siong at Bank of Singapore saying “low US consumer expectations suggest weaker growth in (the second half of 2022) as well as growing risk of recession by year end”.
The Conference Board’s chief economist Dana Peterson warned the United States will likely see a recession in late 2022.
And Emily Weis, at State Street Corp, said: “The Fed still believes it can thread that very fine line between tightening financial conditions while not hurting the economy too much.
“We’re still not sure they’re going to be able to pull that off. That’s what we’ve seen reflected in the markets over the last month or so.”