Oil prices sink Asian equity markets
The massive oil-price spike this morning, has sunk equity markets across Asia, coming after a weak finish on Friday in New York despite a monster Non-Farm Payrolls print. With most of Asia being massive net energy importers, it is hard to construct a bullish case tight now, and with the stagflationary wave coming sure to hit Asia hard, any rallies will probably be measured in days and not weeks.
On Friday, US equities finished on a weak note as markets watched oil prices rise and worries mounted that the Fed would enact more hikes this year than expected. Bond yields actually fell on Friday, but mostly at the long end of the curve. Part of this would be weekend risk-hedging purposes, but part may also be markets pricing in recessionary outlooks, flattening the curve on its way to inversion. That was another reason not to be bullish equities.
The S&P 500 closed 0.79% lower, the Nasdaq retreated 1.66%, while the Dow Jones fell by 0.66%. US futures have collapsed in Asia as oil spiked. S&P 500 futures are down 1.65%, Nasdaq futures by 2.05%, and Dow futures by 1.35%.
Asian markets are in full retreat, led by Japan’s Nikkei 225 which has plummeted by 3.35%. South Korea’s Kospi is 2.35% lower. In mainland China, the Shanghai Composite is down by 1.10%, while the CSI 300 has fallen by 1.90%. Hong Kong markets have also plummeted, the Hang Seng is down by 3.35%.
In regional Asia, the picture is just as grim. Singapore is 0.80% lower, but Taipei has retreated by 2.90%. Kuala Lumpur and Jakarta are down 1.0%, while Bangkok has fallen by 1.20%. and Manila by 2.45%. Australian markets are also lower, the ASX 200 and All Ordinaries have fallen by 1.10%.
If the early price action is saying anything, it is the Asian markets with a higher beta to the tech story are suffering more than those markets which are more commodity and traditional industry-centric. Nevertheless, Brent crude at USD 130.00 has negative ramifications, even for commodity producers.
European markets will draw the go directly to jail Monopoly card this afternoon, and look set to endure an extended period of pain, sandwiched between Ukraine’s front line and the massive jump in energy and commodity prices. US markets will probably open more nervous than Joe Biden’s mid-election hopes this evening. If oil prices correct sharply lower, they may gain temporary respite. Although Ukrainian and Russian officials are scheduled to meet again, none of the rhetoric from the Kremlin suggests Mr Putin is in any mood to compromise and thus, a respite from that direction will once again, be temporary at best.
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