Equity markets suffered more losses in Asia on Wednesday and the dollar extended a rally after a forecast-beating US economic report gave new life to talk of a third straight blockbuster interest rate hike next month.
The services sector data showed the world's top economy remained resilient in the face of surging prices and borrowing costs, highlighting the job the Federal Reserve has in taming inflation while trying to prevent a recession — a goal many observers doubt can be achieved.
The reading added to the gloom blanketing trading floors as investors face a range of headwinds including a worsening energy crisis in Europe, Russia's war in Ukraine and Chinese economic woes caused by Covid-19 lockdowns.
"Overall, the (services) survey paints a picture of solid activity in the services sector of the US economy supported by wages growth suggesting the Fed still has more work to do in order to cool the economy," said National Australia Bank's Rodrigo Catril.
All three main indexes on Wall Street finished in the red Tuesday as they reopened after a long weekend, with expectations growing that the Fed will announce a third successive 75 basis-point rate hike later this month.
Several top Fed officials — including head Jerome Powell — have lined up in recent weeks to say their main focus is bringing inflation down from four-decade highs, even if that means tipping the economy into recession.
The prospect of more big rate hikes has sent the dollar soaring this year, and on Wednesday it hit a new 24-year high of 143.71 yen, leading to speculation the Bank of Japan will step in to support its currency.
The euro remained lodged below parity with the dollar, even as the European Central Bank prepares to ramp up rates, having done so in July for the first time in eight years.
And the greenback was also pushing towards a 37-year peak against sterling, which saw a brief rally Tuesday on reports new UK Prime Minister Liz Truss was planning a £130 billion ($150 billion) package to freeze energy bills.
The losses in New York were tracked by Asia, where Hong Kong, Tokyo, Sydney, Seoul and Taipei all lost at least one percent. Singapore, Wellington and Manila also fell, though Shanghai and Jakarta edged up.
"The September swoon is in play as a resilient economy paves the way for more Fed tightening," said OANDA's Edward Moya.
"Stocks are going to struggle because too much of the (US) economy is doing well. The dovish pivot and the end of interest rate hikes with the December (Fed meeting) is not how this will play out."
Expectations that leading economies will tip into recession, China's lockdown of millions across the country and the stronger dollar continue to push oil prices lower, with both main contracts down more than one percent Wednesday.
Bets on a plunge in demand have seen the commodity tank about 20 percent in recent months, putting them below the levels seen just before Russia invaded Ukraine and sent prices skyrocketing.
And while concerns remain about supplies, OANDA's Moya added: "The short-term crude demand outlook appears to be poised for another wave of China Covid-related lockdowns.
"Despite some better-than-expected US services data, global growth isn't looking good at all and that is trouble for crude prices."
China export growth slows sharply in August: official data
Beijing (AFP) Sept 7, 2022 –
China's export growth slowed significantly in August, customs authorities said Wednesday, as economic uncertainty is exacerbated by strict Covid-19 lockdowns across the country.
The weakness in trade comes as global demand for Chinese products weakens with energy prices soaring and the United States facing the threat of recession.
At the same time the domestic property sector — which accounts for about a quarter of the world's number-two economy — continues to struggle with firms staggering under vast amounts of debt.
Overseas shipments increased 7.1 percent on-year, against 18 percent growth in July, China's General Administration of Customs said, while imports were up only 0.3 percent, compared with a 2.3 percent.
Analysts surveyed by Bloomberg forecast export growth of 13 percent and a 1.1 percent increase in imports.
Sporadic Covid-19 lockdowns around China have dampened consumer enthusiasm and business confidence, while searing temperatures across large parts of the country this summer prompted power rationing for factories.
China's factory activity shrank for the second month in a row in August, but officials are showing few signs of relaxing strict pandemic curbs, with southwestern megacity Chengdu locking down its 21 million inhabitants last week.
And while officials have announced a range of measures aimed at bolstering the economy, commentators warned that there will not likely be any concerted recovery until the tough Covid measures are removed for good.
"As rising energy prices and monetary policy tightening hit US and Western European households, demand for Chinese manufacturing exports is cooling," Rajiv Biswas, APAC Chief Economist at S&P Global Market Intelligence told AFP.
Biswas said he expected these factors to continue dampening Chinese exports for the rest of the year, while the country faces "continued weak domestic demand due to the ongoing impact of pandemic-related restrictive measures on consumer spending as well as the residential construction slowdown".
"Single-digit export growth is more likely for the rest of the year," Zhang Zhiwei, chief economist at Pinpoint Asset Management, told Bloomberg News.
Chinese leaders had originally set a full-year GDP growth target of around 5.5 percent, but with economic expansion of just 0.4 percent in the second quarter, analysts believe it is unlikely to hit that goal.
Michael Hewson of CMC markets said the latest figures "merely serve to underscore how weak domestic demand still is, and how far away that end of year GDP target of 5.5 percent is".
"The target may well have been downgraded to an aspiration only last month, but it's further away than ever after today's data and we could be lucky to see half that number at this rate."
Nomura analysts on Tuesday lowered their 2022 growth forecast for China to 2.7 percent from an earlier estimate of 2.8 percent, with nearly every province in the country fighting Covid outbreaks in recent days.
"The picture is not pretty, as China continues to battle the broadest wave of Covid infections thus far," analysts wrote in a note.
At the same time, China's property market, a major driver of growth, is struggling with a debt crisis and disruptions to construction.
China's central bank last month cut the five-year Loan Prime Rate — a benchmark for mortgages — in an effort to boost the flagging sector.
