May 26, 2022

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Stocks and commodities equalize losses, but growth concerns cloud expectations

Stocks and commodities equalize losses, but growth concerns cloud expectations

A woman wearing a protective mask, amid the outbreak of the coronavirus disease (COVID-19), looks at an electronic board displaying Japan’s Nikkei index outside a brokerage in Tokyo, Japan, March 7, 2022. REUTERS/Kim Kyung-Hoon

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SINGAPORE (Reuters) – Asian shares fell to their lowest levels in nearly two years on Tuesday before paring losses as investors worried about the toxic mixture of high interest rates and weak economic growth.

Sentiment was supported by gains in US stock futures, which turned positive after falling earlier. S&P 500 stock futures and Dow Jones futures are up 0.6%, while Nasdaq futures are up 1.3%.

Growing fears of a recession and a slowdown in China dragged commodity-linked currencies and oil prices, although safe flows kept the dollar near 20-year highs.

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MSCI’s broadest index of Asia Pacific shares, excluding Japan (MIAPJ0000PUS.) Trading was down 0.8% in the early afternoon but pared sharp losses earlier.

The benchmark index fell as much as 2.3 percent to 515.7 and slipped for the seventh consecutive session and continued losses to 18 percent so far this year.

“Chinese growth is facing significant headwinds, whether you look at the official or private sector PMIs,” said Song Seng-won, economist at CIMB Private Banking.

“Weak global growth is a wall of continued anxiety for markets as investors look beyond the next three to six months. The view on growth momentum appears to be that post-pandemic retaliatory spending may be affected by higher borrowing costs,” he said.

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Across Asia, stock indices recovered from the day’s losses. Nikkei (.N225) lost 0.4% of Australian shares (.AXJO) Korean stocks fell 1.1% (.KS11) And lost 0.5% and Taiwan shares (.twii) It rose 0.1%.

The MSCI Asia Index has fallen to its lowest level since early July 2020. Chinese stocks are the worst performing among the major markets so far this year, posting losses of between 21 and 25%. Singapore (.STI) Indonesian stock indices (.jkse) However, it remained constant.

Growth fears resurfaced after central banks in the United States, Britain and Australia raised interest rates last week and investors prepared for further tightening as policymakers grapple with high inflation.

Hong Kong stock index (.HSI) It returned from a one-day holiday sharply lower on Tuesday and fell more than 4% before cutting losses in half.

On Monday, Shanghai and Beijing tightened COVID-19 restrictions that have already taken a heavy toll on the world’s second largest economy. Read more

China’s export growth slowed to its weakest in nearly two years, data showed, as the central bank pledged to ramp up support for the sluggish economy.

Overnight, US stocks continued the sell-off on Friday as investors rushed to protect themselves from the possibility of a weakening economy.

“The idea of ​​a benign and gentle tightening cycle has evaporated,” ANZ analysts said in a report.

“The reality is that the Fed cannot control the supply side of the economy in the short term, as long as key indicators such as the labor force participation rate remain low and Chinese exports slow, the risk of inflation, and therefore interest rates, is high,” ANZ said.

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Oil prices fell again on concerns about demand as lockdowns due to the coronavirus continued in China, the largest oil importer.

Brent crude fell 0.9 percent to $105 a barrel, and US West Texas Intermediate crude fell 1 percent to $102 a barrel, adding to a 6 percent drop in the previous session. Both contracts are still up 35% so far this year.

Commodity-linked currencies, including Australian and Canadian currencies, have been hit as oil prices drop.

The Australian dollar fell as low as $0.6920, its weakest since July 2020, after dropping 1.7% overnight. The drop in oil prices also affected the Canadian dollar, which fell to 1.3037 Canadian dollars per dollar, its weakest level since November 2020.

The dollar index fell 0.2 percent to 103.5, after rising to an overnight high of 104.19, its highest level in 20 years.

US Treasury yields, which rose sharply on expectations of violent tightening by the Federal Reserve, took a breather after Atlanta Fed President Rafael Bostic refused to back down from proposals to raise interest rates by 75 basis points at the upcoming Fed meeting. Read more

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Additional reporting by Elon John. Editing by Sam Holmes and Jacqueline Wong

Our criteria: Thomson Reuters Trust Principles.