Volkswacht Bodensee - Markets drift after Wall St tumble as recession fears return

The optimism that has flowed through trading floors since the start of the year took a knock this week as concerns about inflation and rising interest rates are replaced by growth fears and their impact on company profits.

The downbeat mood offset hopes that China's economy would enjoy a strong recovery this year -- having suffered its worst annual growth in 46 years in 2022 -- as it moves away from its zero-Covid policy.

All three main indexes on Wall Street sank more than one percent Wednesday in response to figures showing retail sales, and shrank at the quickest pace in more than a year, while producer prices fell the most since the beginning of the pandemic.

Industrial production also came in worse than forecast.

While data indicating the economy was struggling has in recent months spurred equities on hopes it will allow the Federal Reserve to slow down its pace of rate hikes, analysts said traders are now concerned about the economic outlook.

"'Bad news is bad news' once again for markets, with weak retail sales and industrial production seeing risk assets sell-off," said National Australia Bank's Tapas Strickland.

The data "adds to the theme of the economy slowing and heading into recession in 2023, and pushes back on the soft landing narrative dominating markets since January".

- Optimism for Asia -

Tokyo, Hong Kong, Singapore, Mumbai and Manila all fell, though Shanghai, Sydney, Seoul, Bangkok and Jakarta edged up.

Wellington's NZX 50 and the New Zealand dollar suffered only small losses despite Prime Minister Jacinda Ardern's shock announcement that she will step down next month, saying she no longer has "enough in the tank".

London, Paris and Frankfurt all opened in the red.

Expectations that US interest rates will not rise as much as previously feared weighed on the greenback, with the yen bouncing back strongly to less than 128 per dollar after Wednesday's Bank of Japan decision not to further tweak monetary policy.

"With the Fed closer to the end of its rate hiking cycle, and the Bank of Japan yet to start its tightening regime, the line of least resistance for dollar-yen is likely to be a move towards 120 and possibly lower in the coming weeks," said Michael Hewson at CMC Markets.

However, several Federal Reserve officials have pushed back against such speculation, warning they will continue to tighten policy until they have brought inflation down from its multi-decade highs.

Worries about recession were also weighing on oil prices, despite hopes for a spike in demand as China reopens to the world. Both main contracts dropped around one percent in afternoon exchanges.

But SPI Asset Management's Stephen Innes said Asian investors could be in for a positive year.

"The clear message to start 2023 has been clear as a whistle: while last year was about Fed and ECB normalisation, this year will be about China and Japan normalisation, which should continue to drive Asia’s fortunes higher in 2023," he said in a note.

- Key figures around 0820 GMT -

Tokyo - Nikkei 225: DOWN 1.4 percent at 26,405.23 (close)

Hong Kong - Hang Seng Index: DOWN 0.1 percent at 21,650.98 (close)

Shanghai - Composite: UP 0.5 percent at 3,240.28 (close)

London - FTSE 100: DOWN 0.4 percent at 7,800.17

Dollar/yen: DOWN at 127.99 yen from 128.80 yen on Wednesday

Euro/dollar: UP at $1.0815 from $1.0797

Pound/dollar: DOWN at $1.2333 from $1.2344

Euro/pound: UP at 87.70 pence from 87.43 pence

West Texas Intermediate: DOWN 1.2 percent at $78.50 a barrel

Brent North Sea crude: DOWN 1.0 percent at $84.13 a barrel

New York - Dow: DOWN 1.8 percent at 33,296.96 (close)

R.Adler--BTB