Asian, European markets mostly down as US inflation moves into focus

AFP , Tuesday 9 May 2023

Markets struggled Tuesday as investors eyed the release of US inflation data later in the week, while mixed Chinese trade data suggested that recovery in the world's number two economy was still taking time.

Federal Reserve Powell
File photo: Federal Reserve Board Chair Jerome Powell speaks during a news conference at the Federal Reserve in Washington, DC, on May 3, 2023. AFP

 

While the region enjoyed a healthy start to the week, there remains plenty of nervousness on trading floors after last week's upheaval in the US banking sector, which hammered financial stocks.

The turmoil saw the sale of the embattled First Republic Bank to JPMorgan Chase and came just two months after the collapse of three other regional banks and the takeover of Swiss giant Credit Suisse by rival UBS.

Still, while a much-anticipated Federal Reserve survey of banks showed tighter lending standards in the first few months of the year, which they see lasting through 2023, analysts said the reading was not as bad as feared.

Asked about their outlook for lending standards over the rest of 2023, "banks reported expecting to tighten standards across all loan categories", the central bank reported.

National Australia Bank's Rodrigo Catril said: "The survey revealed a modest deterioration in lending standards to business at a rate that was slightly higher than in January.

"But, after concerns over the health of US regional banks, the good news is that the survey did not (yet) reveal evidence of a major credit crunch."

Focus is now on Wednesday's consumer price index report for April and the following day's wholesale prices data.

A drop in the inflation reading in recent months has fanned hopes that the Fed will soon pause its tightening campaign and even begin cutting by the end of the year, with the banking crisis reinforcing that view.

After lifting borrowing costs last week, officials hinted at a possible hold at their June meeting.

After a largely flat Monday on Wall Street, Asia was mostly in the red.

Hong Kong and Shanghai sank as Chinese data showed April exports rising more than expected but slowing from March, while imports plunged far more than expected.

"Colossal miss"

The readings suggested the economic recovery was taking much longer to kick in, even after officials lifted strict zero-Covid measures at the end of last year.

"There is no way to sugarcoat this one, as it's a colossal miss of epic proportions" on the imports reading, said SPI Asset management's Stephen Innes.

"Hence the clear read-through is to expect weaker (Chinese) inflation numbers on Thursday as domestic demand remains exceptionally fragmented. And this begs the question, where is the (central bank) support?"

There were also losses in Seoul, Singapore, Wellington and Jakarta, though Tokyo, Mumbai and Taipei rose.

London was flat at the open as it reopened after a long weekend. Paris and Frankfurt both dipped.

Shanghai was also higher ahead of Chinese trade data later in the day, which will be pored over for clues about the regional giant's economic recovery.

Traders are also keeping tabs on developments in Washington as President Joe Biden prepares to talk to congressional leaders, with a debate raging on raising the US debt ceiling.

There are worries that lawmakers will fail to reach a deal to increase the amount the country can borrow to meet its repayment obligations, with right-wing Republicans determined to secure spending cuts.

Treasury Secretary Janet Yellen has warned the government could hit its limit by the start of June, adding that "financial and economic chaos would ensue" if a deal was not reached.

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