Asian markets drop as recession talk builds

HONG KONG, China  -Growing fears of a US recession weighed on equities Thursday as traders geared up for the release of key jobs data that could determine the Federal Reserve’s next interest rate decision.

After a few weeks of gains fueled by hopes the central bank would soon take its foot off the pedal in tightening monetary policy, data this week has fanned talk that its year-long hiking campaign may have gone too far.

On Wednesday, a report from the Institute for Supply Management showed the US services sector grew less than forecast last month, while another pointed to private employers slowing their hiring pace in March.

The readings came a day after news that job openings had fallen to their lowest level since May 2021.

While traders have long hoped for a tightening of the labor market and an economic slowdown that would allow the Fed to stop lifting rates, there is now a rising concern of a deep recession.

Adding to the unease is ongoing uncertainty about the banking sector after last month’s turmoil that saw two US regional banks go under and Credit Suisse taken over.

The upheaval was largely blamed on the sharp pace of rate hikes over the past year.

“While this sombre economic news might have otherwise been received as good news for the waning soft-landing crew, recent price action suggests that investors are weighing up the possibility that the US economy may have met too much resistance between higher rates and regional bank uncertainty, which could eventually tip the US into recession,” said SPI Asset Management’s Stephen Innes.

The prospect of a recession weighed on US markets, with the S&P 500 and Nasdaq in the red, while traders also shifted into safe-haven Treasuries.

And gold, another go-to in times of turmoil and uncertainty, stayed above $2,000 while heading towards a record high of $2,075.47 set in August 2020.

In Asia, the mood was also broadly downbeat, with business winding down ahead of the long Easter weekend.

Hong Kong and Shanghai fell as they reopened after a one-day holiday, while Tokyo was weighed by a strengthening yen. Sydney, Seoul, Singapore, Taipei, Jakarta and Manila were also down.

Shanghai and Wellington were flat and Mumbai edged up slightly.

London, Paris and Frankfurt opened higher.

There was little movement after data showed a private survey of services activity in China rose more than expected last month, suggesting the world’s number two economy is slowly getting back up to speed.

The Caixin purchasing managers index came in at 57.8, its highest since November 2020, and well up from the 55 posted in February. Anything above 50 is considering growth.

That report came after an official reading on March PMI services last week came in at a record high.

Focus now turns to the release of key US non-farm payroll figures on Friday, which will provide the latest snapshot of the economy and could guide the Fed’s rate decision making.

“A soft jobs report… along with a weak (consumer price index) print next week could call time on the prospect of another 25 basis point hike at the next meeting,” said CMC Markets analyst Michael Hewson.

“What it is unlikely to do is precipitate a shift in Fed thinking when it comes to a rate cut, which is what markets are increasingly pricing. Inflation would need to fall much further from current levels for that to happen and that doesn’t appear to be happening at the moment.”

Still, while there was a glum feeling on trading floors, John Vail, of Nikko Asset Management, told Bloomberg Television: “We don’t see a recession in the States this year and that will surprise some investors on the positive side.”

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