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Stocks slump on fresh inflation, China COVID worries

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© Reuters. FILE PHOTO: A man looks at stock market monitors in Taipei January 22, 2008. REUTERS/Nicky Loh/File Photo

By Kevin Buckland

TOKYO (Reuters) – Asian stocks sank on Monday and bond yields ticked higher as red-hot inflation reignited worries about even more aggressive U.S. interest rate increases while new mass COVID-19 testing in China sparked concerns of more crippling lockdowns.

The heightened expectations about Federal Reserve rate hikes drove the Japanese yen to a more than two-decade low against the dollar, prompting more concern from authorities about the sharp moves down.

MSCI’s benchmark Asia-Pacific equity index slumped 2.66%.

The stock weakness was expected to extend into U.S. and European trading with futures pointing to a 1.67% drop for the S&P 500, a 1.4% retreat for Germany’s DAX and a 0.77% slide for Britain’s FTSE.

“It is turning into a Black Monday in Asia,” Jeffrey Halley, senior market analyst at OANDA, wrote in a client note.

“The R-word (is) now on everyone’s lips” amid “a scramble to reassess Fed hiking expectations,” he wrote.

Focus in Asia was on the risk of fresh COVID-19 lockdowns with Beijing’s most populous district of Chaoyang announcing three rounds of mass testing to quell a “ferocious” COVID-19 outbreak that emerged at a bar.

Shanghai conducted mass testing to contain a jump in cases tied to a hair salon.

Chinese blue chips dropped 1.42% and Hong Kong’s Hang Seng suffered a 3.29% slide.

Japan’s Nikkei slumped 3.03% and South Korea’s Kospi declined 3.27%. Australian markets were closed for a holiday.

“Anyone trying to pick the bottom in China’s growth and equity markets on the basis that China was ‘one and done’ on lockdowns is naive,” OANDA’s Halley said.

China’s Growth shares sagged, with tech giants listed in Hong Kong slumping 4.45%. Index heavyweights Alibaba (NYSE:BABA), Tencent and Meituan were each down between 4% and 6%.

INFLATION WORRIES

In currency markets, the dollar climbed as high as 135.22 yen, its highest since October 1998, buoyed by a rise in Treasury yields that continued into Tokyo trading.

The 10-year reached a more than one-month peak of 3.202%, putting it just a tenth of a basis point from the highest since November 2018.

That put upward pressure of Japanese government bond yields, with the 10-year pushing to a six-year high of 0.255%, half a basis point above the Bank of Japan’s 0.25% tolerance limit under its yield curve control policy. That’s even amid the BOJ’s standing offer to buy unlimited amounts of the 10-year note since April.

The breach of its ceiling spurred the central bank to announce an additional, unscheduled purchase operation.

The U.S. consumer price index increased a bigger-than-expected 8.6% last month, the largest year-on-year increase since December 1981, data showed on Friday.

That dashed hopes that inflation had peaked and instead put markets on alert that the Fed may tighten policy for too long and cause a sharp economic slowdown. The next policy decision is on Wednesday.

“The inflation data are game changers that force the Fed to switch to a higher gear, front-loading policy tightening,” Jefferies strategist Aneta Markowska wrote in a research note, lifting a call for this week’s decision to a 75 basis point hike.

Markets currently price 80% odds of a half point increase, and 20% odds for 75 basis points.

Two-year Treasury yields, which are very sensitive to policy expectations, leapt as high as 3.194% in Tokyo on Monday, a first since December 2007.

The U.S. dollar index, which measures the currency against six major peers including the yen, ticked as high as 104.58 for the first time in almost a month.

The euro slid as low as $1.04755 for the first time since May 19.

Leading cryptocurrency bitcoin slumped to the lowest since December 2020 at $24,888.88.

Meanwhile, crude oil dropped, with Brent crude futures down $1.81, or 1.48%, to $120.20 a barrel and U.S. West Texas Intermediate crude at $118.81 a barrel, down $1.86, or 1.54%.

Economy

South Korean exports dropped 14% in November, the highest in 2.5 years

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exports South Korea

South Korea’s exports fell 14 percent year-on-year to $51.91 billion in November, preliminary data from the Ministry of Commerce, Industry and Energy showed. The November drop was the biggest in 2.5 years since May 2020 and was caused both by the deteriorating global economy, which even a Google price chart showed, and a truckers’ strike in the country.

South Korea exports 2022 – reasons for the drop

Exports fell for the second month in a row. Analysts on average expected an 11% decline, according to Trading Economics. Respondents to MarketWatch predicted a 10.5% decline.

Shipments of semiconductor products overseas, the country’s top export item, fell 29.8%; petrochemicals fell 26.5% and steel exports fell 10.6%. Meanwhile, exports of automobiles jumped 31% and petroleum products 26%.

Exports to China, South Korea’s largest trading partner, fell by 25.5%, and to Asian countries – by 13.9%. Below, supplies to the USA grew by 8% and to the European Union – by 0.1%.

In January-November exports rose by 7.8% on the same period last year and reached a record $629.1 billion.

South Korean imports rose 2.7% to $59.2 billion in November, marking the 23rd consecutive month of gains, but the current rate of growth is the lowest since November 2020. Experts had predicted an increase of only 0.2%.

South Korea’s trade deficit last month was $7.01 billion, compared with a surplus of $2,973 billion a year earlier.

The negative balance was recorded for the eighth month in a row. As a result, by the end of 2022, the country may record a foreign trade deficit for the first time since the financial crisis in 2008.

Earlier we reported that the UN estimates the cost of humanitarian aid in 2023 at a record $51 billion.

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Economy

The UN estimates humanitarian aid costs in 2023 at a record $51 billion because of an impending humanitarian crisis

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a humanitarian crisis

Joint humanitarian operations will require a record $51.5 billion in 2023 to address urgent problems.

The UN Office for the OCHA estimates that 339 million people will need urgent aid in 2023. At the same time, OCHA called on donor countries to provide funds for assistance in 2023 to the 230 million people most in need, living in 68 countries.

Griffiths explained that aid is needed not only for people experiencing conflicts and disease outbreaks. but also for those suffering the effects of climate change, such as people in peninsular Somalia facing drought and those in Pakistan experiencing severe flooding. For the first time, the growing humanitarian crisis has brought the number of displaced people worldwide to the 100 million mark. Also worsening an already bad situation is the worldwide coronavirus pandemic, which affects the poor. Note that the general economic crisis has begun to negatively affect even the Netflix price chart.

Earlier we reported that house prices in the UK fell by 1.4% in November.

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Economy

Average house prices in the UK fell 1.4% in November

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average house prices in the uk

Average house prices in the UK fell 1.4% in the previous month in November to 263,788 thousand pounds (about $319,000), according to the British mortgage company Nationwide Building Society.

The decline was recorded at the end of the second consecutive month and was the most significant in almost 2.5 years – since June 2020. Analysts on average had forecast a decline of only 0.3%, according to Trading Economics.

Are house prices in the UK going to fall even more?

Residential real estate prices in November compared to the same month last year increased by 4.4%. At the same time, experts expected a larger increase of 5.8%. The growth rate slowed down significantly compared with 7.2% in October. Because of the difficult economic situation, British investors are investing in other instruments. The Microsoft price chart, for example, is showing potential for growth, so many are interested in the U.S. stock market. 

“The market looks set to remain under pressure in the coming quarters. Inflation will remain high for some time, and interest rates are likely to continue to rise,” believes Nationwide Senior Economist Robert Gardner. – The outlook is unclear, and much will depend on how the overall economy behaves, but a relatively soft landing is still possible.”

Earlier we reported that Sanctions Circumvention was included in the EU’s list of criminal offenses.

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