Asian shares are ending a rough quarter in a sombre mood amid fears central banks’ cure for inflation will end up sickening the global economy, though it is proving to be a fillip for the safe-haven dollar and government bonds.
Policymakers on Wednesday reiterated their commitment to controlling inflation no matter what pain it caused, and data on US core prices later in the session will only underline the extent of the challenge.
“Inflation can be sticky,” analysts at ANZ warned. “It is broadening from goods to services and wage growth is accelerating.”
“Even with rapid rate rises, it will take time for tightness in labour markets to unwind, and that means inflation can stay higher for longer.”
The S&P 500 has lost almost 16 per cent this quarter, its worst performance since the very start of the pandemic, while the Nasdaq is off 21 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan eased another 0.4 per cent on Thursday, bringing its losses for the quarter to 10 per cent.
Japan’s Nikkei fell 0.8 per cent, though its drop this quarter has been a relatively modest four per cent thanks to a weak yen and the Bank of Japan’s dogged commitment to super-easy policies.
The need for stimulus was underscored by data showing Japanese industrial output dived 7.2 per cent in May, when analysts had looked for a dip of only 0.3 per cent.
Chinese blue chips added 0.6 per cent helped by a survey showing a marked pick up in services activity.
For now, the risk of recession was enough to bring US 10-year yields back to 3.085 per cent from their recent peak at 3.498 per cent, though that is still up 77 basis points for the quarter.
The yield curve has continued to flatten, and turned negative in the three- to seven-year range, while futures are almost fully priced for another Federal Reserve hike of 75 basis points in July.
The Fed’s hawkishness and an investor desire for liquidity has gifted the US dollar its best quarter since late 2016. The dollar index was trading up at 105.100 and just a whisker from its recent two-decade peak of 105.79.
The euro was struggling at $US1.0442, having shed 5.6 per cent for the quarter, though it remains just above the May trough of $US1.0348.
The Japanese yen is in even worse shape, with the dollar having gained more than 12 per cent this quarter to 136.70 and hitting its highest since 1998.
Rising interest rates and a high dollar have not been good for non-yielding gold, which was stuck at $US1,818 an ounce having lost six per cent for the quarter.
Oil prices were flat on Thursday. September Brent rose two cents to $US112.47 a barrel, while US crude eased five cents to $US109.73.