Markets sink as US jobs data fan rate hike bets

HONG KONG - Stock markets sank Monday as forecast-beating US jobs data fanned expectations for another big Federal Reserve interest rate hike, while traders are now focusing on an upcoming inflation report.

A brief rally across trading floors last week gave way to gloom as investors grow increasingly worried that central bank efforts to tame runaway prices will plunge the global economy into recession.

Adding to the stress is the upcoming corporate earnings season, which many fear will show that companies are feeling the pain of tightening monetary policies, and fresh China-US tensions.

All three main indexes tumbled Friday -- with the Nasdaq off almost four percent -- following news that a net 263,000 US jobs were created in September.

While that was down from August it was more than expected and showed that the labor market remained robust and highlighted the tough job Fed officials face in their battle against four-decade-high inflation. 

With the spotlight on a consumer price index reading later in the week, policymakers continue to take a hawkish tone, warning they will not ease up on their rate hikes even if that means causing a recession.

Asia tracked the US losses, with Hong Kong down three percent and hefty selling in Sydney, Singapore, Mumbai, Bangkok, Manila, Jakarta and Wellington. 

Shanghai dropped as traders returned from a week-long holiday, with rising Covid numbers in the country leading to worries of more economically painful lockdowns ahead of a key Communist Party gathering.

Chinese tech firms were also hit after Washington on Friday announced new export controls aimed at restricting China's ability to buy and make high-end chips with military applications, adding to tensions between the countries.

London, Paris and Frankfurt all fell in the morning, while Moscow stocks plunged nearly 12 percent following a series of strikes on cities across Ukraine and after the bridge connecting Crimea to Russia was hit by an explosion at the weekend.

Tokyo, Seoul and Taipei were closed.

"The sell-off in equities and the rally in the dollar following Friday's US employment report reflects the concern that the hurdle for a Fed pause is high," said SPI Asset Management's Stephen Innes.

"The rising unemployment rate needed to help bring down CPI inflation will require job losses despite the political fallout that is bound to ensue. Regardless, tightening monetary policy until job losses materialize is on the cards."

He added that there was also nervousness about earnings.

"Unlike June, where earnings were poised to beat expectations, investors are biased towards hitting the sell button as concern around lagged effects of tightening hitting bottom lines now permeate expectations," he said in a note.

The prospect of higher US borrowing costs sent the dollar rallying Friday and it held most of those gains in early Asian trade.

Investors are keeping an eye on the yen, which is edging back to the lows touched last month when the government stepped in with a massive cash injection to support the currency.

The pound weakened even as the Bank of England said it was launching a temporary facility aimed at easing liquidity pressures that arose after the UK government's budget shocked markets last month.

It said it was ready to increase the size of its UK government bond purchases under an emergency measure due to end Friday.

The pound has been hammered -- at one point hitting a record low versus the dollar -- since finance minister Kwasi Kwarteng unveiled a debt-fuelled tax-cutting mini-budget.

Oil prices edged down after seeing their biggest weekly gain since March in reaction to a decision by OPEC and other major producers led by Russia to cut output by two million barrels a day.

The drop Monday came on demand concerns caused by China's Covid flare-ups and more weak data out of Beijing caused by recent lockdowns.

"A slew of weak macroeconomic data that China has released shows that there is very limited room for an economic rebound in the short term, which is hard to provide support for earnings and market confidence," Shen Meng, at investment bank Chanson & Co in Beijing, said.

Key figures around 0810 GMT 

Hong Kong - Hang Seng Index: DOWN 3.0 percent at 17,216.66 (close) 

Shanghai - Composite: DOWN 1.7 percent at 2,974.15 (close)

Tokyo - Nikkei 225: Closed for a holiday

London - FTSE 100: DOWN 0.7 percent at 6,944.90

Pound/dollar: UP at $1.1074 from $1.1082 on Friday

Euro/dollar: DOWN at $0.9703 from $0.9743

Euro/pound: DOWN at 87.62 pence from 87.97 pence

Dollar/yen: DOWN at 145.35 yen from 145.38 yen

West Texas Intermediate: DOWN 0.4 percent at $92.27 per barrel

Brent North Sea crude: DOWN 0.5 percent at $97.44 per barrel

New York - Dow: DOWN 2.1 percent at 29,296.79 (close)

-- Bloomberg News contributed to this story --

Agence France-Presse

COVID crisis sinks global economy in 2020, collapsing GDP 4.9 percent: IMF

WASHINGTON - The global coronavirus pandemic has sparked an economic "crisis like no other," sending world GDP plunging 4.9 percent this year and wiping out $12 trillion over two years, the IMF said Wednesday.

Worldwide business shutdowns destroyed hundreds of millions of jobs, and major economies in Europe face double-digit collapses.

The prospects for recovery post-pandemic -- like the forecasts themselves -- are steeped in "pervasive uncertainty" given the unpredictable path of the virus, the IMF said in its updated World Economic Outlook.

"The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast," the fund warned.

While businesses are reopening in many countries and China has seen a bigger rebound in activity than expected, a second wave of viral infections threatens the outlook, the report said.

World GDP is expected to rebound by just 5.4 percent in 2021, and only if all goes well, the IMF warned.

IMF chief economist Gita Gopinath said under current forecasts, the crisis will destroy $12 trillion over two years, and cautioned, "we are not out of the woods." 

"Substantial joint support from fiscal and monetary policy must continue for now," Gopinath said in a blog post.

The downturn is particularly damaging for low-income countries and households, and threatens to endanger the progress made on reducing extreme poverty, the Washington-based crisis lender said in its report.

The fund made drastic downward revisions to most of the April forecasts made in the early days of the pandemic, and IMF economists fear the coronavirus will leave lasting scars on employment, businesses and trade.

Hanging over the predictions is the bill for massive government stimulus plans, which were fueled by extremely low interest rates and likely prevented the recession from turning into a depression even as they created huge and ever-increasing debt levels.

The damage is nonetheless stunning, and more widespread than any downturn in recent decades. The recession in many major economies will be more than double that suffered during the global financial crisis in 2009, which came as major developing economies like China, India and Brazil were booming.

China will eke out growth of one percent this year, the only positive figure on the long list of key economies the IMF tracks.

The United States will shrink eight percent and Germany slightly less, while France, Italy, Spain and Britain will suffer double-digit contractions. Japan makes out a bit better with a drop of just 5.8 percent, according to the forecasts.

Mexico also will see a double-digit decline while Brazil just misses that mark, as does Argentina, which is in the middle of a massive debt crunch on top of its health and economic crises after the country once again defaulted on its foreign obligations.

The IMF pointed to International Labour Organization data estimating more than 300 million jobs were lost in the second quarter of the year.

The "sizeable" flood of government funds to support workers and businesses "have forestalled worse near-term losses," but the IMF urged countries to avoid a situation where aid is "prematurely withdrawn or improperly targeted" since that could worsen the economic damage.

"A more prolonged decline in activity could lead to further scarring, including from wider firm closures, as surviving firms hesitate to hire jobseekers after extended unemployment," the fund warned.

With transport and manufacturing shut down for weeks, the IMF projects global trade volume will collapse by just under 12 percent -- and advanced economies will see an even more dramatic drop.

The IMF also warned of dangers posed by eroding relations between and within countries.

"Beyond pandemic-related downside risks, escalating tensions between the United States and China on multiple fronts, frayed relationships among the Organization of the Petroleum Exporting Countries (OPEC+) coalition of oil producers and widespread social unrest pose additional challenges to the global economy," the report said.

Trade disruptions could undermine productivity as firms shift supply chains to try to protect themselves against future breakdowns, and companies also face higher costs as they adopt enhanced cleaning procedures and social distancing requirements.

Amid the uncertainty, there is a chance the recession could be less severe than forecast, the report said.

"Downside risks, however, remain significant," it warned.

Agence France-Presse

Asian shares fall on recession fears; eyes on Fed minutes

SYDNEY -- Asian shares fell on Wednesday as fresh worries about a global recession led investors to dump risky assets, with US President Donald Trump showing no signs of backing down in his trade war with China.

Trump said on Tuesday he had to confront China over trade even if it caused short-term harm to the US economy because Beijing had been cheating Washington for decades.

His strongly worded remarks came hours before his government announced approval of an $8 billion sale of Lockheed Martin F-16 fighter jets to Taiwan, a move sure to draw Beijing's ire and further dim prospects for a quick trade deal.

MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.2 percent, 3 three straight days of gains.

Japan's Nikkei slipped 0.6 percent, Australian shares were 0.8 percent lower and South Korea's KOSPI index was a shade weaker.

On Wall Street, the Dow and the Nasdaq fell 0.7 percent each while the S&P 500 lost 0.8 percent.

Some analysts expect a further correction in world shares, which are still above their December lows.

Aside from the trade war, political turmoil in Hong Kong, Britain and Italy have also heightened uncertainties for investors. The prospect of new elections in Italy after the resignation of Prime Minister Giuseppe Conte added to jitters, sending Italian sovereign bond yields sliding.

The key for markets now is whether pledges for more accommodative policy from Germany to China are enough to assuage concerns about the state of the global economy and end fears of recession.

The immediate focus shifts to the minutes of the Fed's most recent meeting, due on Wednesday. Traders are also awaiting the central bank's Jackson Hole seminar later this week and a Group of Seven summit this weekend for clues on what additional steps policymakers will take to boost economic growth.

Morgan Stanley economist Ellen Zentner advised clients to watch for the use of the word "somewhat" when Fed Chair Powell describes further policy adjustments.

"Acknowledgment that downside risks have increased with no characterisation of 'somewhat' could be taken as confirmation that it is likely the Fed makes a larger cut in September," Zentner wrote in a note.

Investors are pricing in a 16 percent chance of a 50 basis point cut to US Fed funds rate in September.

MORE STIMULUS

Alarm bells started ringing last week when US 2-year yields traded above those of their 10-year counterparts for the first time since 2007, an inversion that has presaged previous recessions and is widely watched by markets.

Most fund managers and economists expect global policy stimulus to prevent the world from tipping into recession. Supporting that belief, Reuters reported earlier Trump and his advisers are examining ways to provide a boost to the US economy should it be deemed necessary.

In addition, the central banks of the euro zone, Australia and China are all expected step open the monetary spigot further this year while Germany is considering fiscal stimulus.

Those prospects have driven yields lower. Benchmark US 10-year Treasuries rose on Tuesday to yield 1.540 percent from a high of 1.625 percent on Monday.

However, currency markets were mostly subdued ahead of the Jackson Hole meeting and Fed minutes. The Japanese yen was little changed at 106.24 per dollar after firming 0.4 percent versus the greenback on Tuesday, while sterling was last trading at $1.2162.

The euro trod water near Tuesday's high of $1.1101.

The dollar index was on the defensive as it drifted away from a three-week top touched earlier on Monday. It was last flat at 98.208.

In commodities markets, US crude dipped 2 cents to $56.11 per barrel while Brent added 5 cents to $60.08.

Spot gold was a shade weaker at $1,506.14 an ounce.

source: news.abs-cbn.com