Asian stocks fell Monday after another week of significant losses on Wall Street as investors braced for another rate hike by the US Federal Reserve.
The Japanese markets were closed for a holiday. Oil prices rose while US futures fell.
Friday issued a sharp warning from FedEx about rapidly deteriorating economic trends to make investors more concerned. The S&P 500 fell 0.7%, while the Nasdaq lost nearly 1%. The Dow lost nearly half a percent.
The markets are on edge because of the stubbornly high inflation and the interest rate hikes used to combat it. The fear is that the Fed and other central banks would exceed their policy targets, triggering a recession.
Most economists predict that the Fed will raise its primary lending rate by another three-quarters of a point when central bank leaders meet this week.
“The fact is that aggressive expectations based on the ‘hot under the hood’ US inflationary pressures mean that markets have good reason to brace for headwinds amid prospects of higher (for longer) yields; and arguably also “higher for longer” USD (dollar),” Mizuho Bank’s Vishnu Varathan said in a commentary.
The S&P 500 fell 4.8% for the week, with much of the loss coming from a 4.3% defeat on Tuesday following a surprisingly warm report on inflation.
All major indices have now lost four of the past five weeks.
In Asia, Hong Kong’s Hang Seng lost 0.9% to 18,586.47 on Monday, while the Shanghai Composite Index lost 0.3% to 3,115.87. The Australian S&P/ASX 200 closed 0.1% lower to 6,731.80. In Seoul, the Kospi sank 1% to 2,360.22 points.
The Bank of Japan will meet on Wednesday and Thursday amid mounting pressure to counter a sharp decline in the yen, which trades near 145 against the dollar after sharp gains in the dollar’s value. That has increased costs for businesses and consumers, who have to pay more for imports of oil, gas and other necessities.
However, the Bank of Japan has so far been steadfast in maintaining an ultra-low benchmark interest rate of minus 0.1% in hopes of boosting investment and spending.
FedEx fell 21.4% for its biggest one-day sell-off on record Friday after warning investors that fiscal first quarter earnings are likely to fall short of forecasts due to a downturn in business. The parcel delivery service is also closing storefronts and corporate offices and expects business conditions to weaken further.
The S&P 500 fell 0.7% to 3,873.33 points. It is down 18.7% so far this year. The Dow Jones Industrial Average fell 0.5% to 30,822.42 and the Nasdaq fell 0.9% to 11,448.40.
Household goods makers, typically viewed as less risky investments, outperformed the rest of the market. Campbell Soup rose 1.3%.
Higher interest rates tend to weigh on stocks, especially the more expensive technology sector. Technology stocks within the S&P 500 are down more than 26% this year and communications companies have lost more than 34%. These are the worst performing sectors in the benchmark index so far this year.
The housing sector is also suffering from rising interest rates. Average long-term mortgage rates in the US have risen above 6% this week for the first time since the 2008 housing crash. Higher interest rates could make an already tight housing market even more expensive for home buyers.
Government reports this week showed that prices for just about everything but gas are still rising, the labor market is still piping hot and consumers are continuing to spend, all of which gives ammunition to Fed officials who say the economy can tolerate more rate hikes. .
On another trading Monday, the US benchmark crude gained 58 cents to $85.69 a barrel in electronic trading on the New York Mercantile Exchange. It rose 1 cent to $85.11 a barrel.
Brent oil rose 72 cents to $92.07 a barrel.
The dollar strengthened to 143.14 Japanese yen from 142.94 yen. The euro fell from $1,0014 to 99.98 cents.