Volkswacht Bodensee - Stocks, oil dive as recession fears return after brief market respite

While Asia, Wall Street and Europe all enjoyed healthy gains on Tuesday, analysts warned the downbeat mood on trading floors means the selling is unlikely to end any time soon.

Federal Reserve boss Jerome Powell's two-day testimony to Congress this week will be pored over for an idea about officials' plans for fighting runaway prices, which are being fanned by supply chain snarls, China's lockdowns and the war in Ukraine.

Most observers expect them to hike rates by three-quarters of a point several more times this year, having announced such a move in June -- the sharpest lift in almost 30 years.

However, while many believe the Fed's front-loaded tightening drive is needed -- allowing it to begin cutting sooner as price rises settle back -- there is a building consensus that the world's top economy is heading for a contraction next year.

"The Fed has entered into a policy cocktail that we would describe as hammer time," Gene Tannuzzo, at Columbia Threadneedle Investments, told Bloomberg Television.

"You have to be planning defensively at this point. There are a lot of questions on all risk assets."

In Asian trade, Hong Kong, Tokyo, Shanghai, Sydney, Singapore, Seoul, Manila, Taipei, Jakarta and Bangkok were all deep in the red.

London followed suit, dropping more than one percent after official data showed UK inflation had reached a fresh 40-year high.

- Crude prices hammered -

Stephen Innes at SPI Asset Management said that while the selling from last week had abated, traders continued to fret over a recession and the prospect of more rate hikes, adding that the Fed could be more compelled to respond if oil prices surge again and push up inflation further.

"One cause of the market malaise could be the thought of business confidence catching down to consumer confidence; hence the risk in equities is for an earnings downgrade," he wrote in a note.

"We could see that play out in the context of weaker University of Michigan sentiment on Friday, which could lead investors to conclude US consumers will start tightening their purse strings.

"Indeed, an extremely powerful equity market sell signal."

Oil prices were feeling the heat from recessionary fears, with both main contracts tanking Wednesday on demand worries caused by any recession, despite China's reopening moves, the US holiday driving season and tight supplies.

Still, Goldman Sachs said that with demand still outpacing supplies, the market remains tight.

"Investors should remember that Fed-induced slowdowns are simply a short-term abatement of the symptom, inflation, and not a cure for the problem, underinvestment," it added.

Bets on the Fed's rate hikes and the Bank of Japan's refusal to move from its policy of ultra-low rates continue to pile pressure on the yen, which is sitting at a 24-year low above 136.50 to the dollar.

Japanese Prime Minister Fumio Kishida's comment that it "is up to the central bank" how to maintain its easy money policy added to pressure on the country's currency, though famed economist Nouriel Roubini said he expects Tokyo to take action if the yen hits 140.

"If you go well above 140, the BoJ will have to change policy and the first change in policy is going to be yield curve control," he said referring to a policy of keeping long-term rates artificially at a chosen level.

"So I think another 10 percent fall in the yen will imply a change in policy," he told Bloomberg Television at the Qatar Economic Forum.

- Key figures at around 0720 GMT -

Tokyo - Nikkei 225: DOWN 0.4 at 26,149.55 (close)

Hong Kong - Hang Seng Index: DOWN 2.4 percent at 21,040.37

Shanghai - Composite: DOWN 1.2 percent at 3,267.20 (close)

London - FTSE 100: DOWN 1.3 percent at 7,057.87

West Texas Intermediate: DOWN 5.1 percent at $103.92 per barrel

Brent North Sea crude: DOWN 5.6 percent at $108.62 per barrel

Euro/dollar: DOWN at $1.04.86 from $1.0535 late Tuesday

Pound/dollar: DOWN at $1.2218 from $1.2273

Euro/pound: UP at 85.81 pence from 85.80 pence

Dollar/yen: DOWN at 136.54 yen from 136.64 yen

New York - Dow: UP 2.2 percent at 30,530.25 (close)

C.Meier--BTB