ASIA MARKETS: Shares Mixed, Currencies Fall Amid U.S. Recession Risks

Thursday,   23-Jun-2022   10:04 AM (IST)

Asian shares were trading mixed while currencies declined on worries that rate hikes by the Federal Reserve to rein in inflation could tip the U.S. economy into a recession. Shares fell 0.5% in South Korea and dropped 0.3% in Japan. Chinese equities advanced 0.4% while Hong Kong’s index rose 0.6%. Futures on the S&P 500 Index were marginally lower. The FTSE Bursa Malaysia KLCI Index was up 0.2% at 1,433.28, led by Sime Darby Plantations. The South Korean won and the Thai baht dropped about 0.3%, the onshore Chinese yuan dipped to 6.7058 to the dollar, and the Malaysian ringgit to 4.4060. The dollar index was little changed, hovering just above 104. Investors assessed the weakening outlook for the U.S. economy amid the Fed balance sheet reduction and swift rate hikes. Fed Chair Jerome Powell yesterday, in his testimony to lawmakers, acknowledged that a recession was certainly a possibility and developments around the world made it more difficult to reduce inflation without causing one. On interest rates, Powell said that ongoing increases in the Fed's policy rate would be appropriate and the exact pace would depend on the economic outlook. Powell’s recognition of the risks to the economy comes after the Fed this month raised rates by 75 basis points, the biggest increase in 28 years. The Fed, alongside rate increases, is reducing the size of its balance sheet in its bid to put a lid on inflation expectations. Financial conditions have been moderately stressed amid a correction in asset prices, stresses in the mortgage lending space are showing up in the weak housing data, and there are increasing signs that the labor market might be weakening, DBS pointed out. The flat Treasury yield curve is evidence of the extent to which investors are worried about the economy. The 10-year U.S. yield is less than 10 basis points more than the 2-year, having already inverted twice. Crude oil prices extended their recent pullback on worries over demand. The August Brent crude contract was down almost 3% to $108.58 per barrel. Less than 10 days ago, the contract had reached above $125.