Traders are eyeing Tokyo as the yen falls towards the 145.90 per dollar level touched last month that led to a massive intervention to support the currency

Hong Kong (AFP) - Markets mostly fell Tuesday as investors grow increasingly fearful that more big interest rate hikes will tip economies into deep recessions, with the mood also darkened by the worsening Ukraine war and worries over China’s outlook.

With the focus on inflation, analysts said consumer price index data released later this week will be crucial to the direction of risk assets – another big reading could spark a fresh equity selloff and surge in the dollar.

Investors had hoped that a series of bumper rate increases by the US Federal Reserve this year would begin to drag on the economy and slow runaway prices, allowing policymakers to slow down their pace of monetary tightening.

But a forecast-beating jobs report on Friday highlighted the tough work the central bank has in bringing inflation down from four-decade highs, and many observers warn a recession is virtually inevitable.

World Bank chief David Malpass said there was a “real danger” of a global contraction next year, adding that the surge in the dollar was weakening the developing nations’ currencies and pushing their debt to “burdensome” levels.

And JP Morgan boss Jamie Dimon told CNBC that while the US economy was holding up now, it faced several headwinds including rising rates, surging inflation, Fed tightening and the Ukraine war.

He added that he saw a US recession in six to nine months, and that the S&P 500 could fall another 20 percent.

Barings strategist Christopher Smart said: “It’s little wonder investors enter the week in a dreary mood, especially with headlines from Ukraine signalling a further escalation in geopolitical tensions.

“Of course, markets are meant to look ahead, but it’s hard not to see the next few quarters bringing more of the same.”

After another round of losses in New York, Asia again struggled.

Chip manufacturers globally took a pounding from new US export controls aimed at restricting China’s ability to buy and make high-end chips with military applications.

The Philadelphia Stock Exchange Semiconductor Index saw its lowest close since late 2020, while Bloomberg News reported that $240 billion had been slashed from companies’ market values worldwide.

- ‘Volatility ahead’ -

Taipei led the losses in Asia – diving more than four percent – as chip giant TSMC plunged 8.3 percent, while a hefty selloff in Samsung Electronics dragged Seoul down 1.6 percent. Tokyo was also sharply lower owing to a hit to tech firms.

All three markets had been closed Monday and were reacting to Friday’s US announcement for the first time.

Hong Kong fell more than two percent to below 17,000 points for the first time since late 2011, while Sydney, Singapore, Mumbai, Bangkok and Jakarta were also lower.

Shanghai, Wellington and Manila edged up slightly on bargain-buying.

London, Paris and Frankfurt also fell at the open.

“There is growing pessimism in the markets now and with some big data points to come from the US this week, not to mention the start of earnings season… investors should probably brace for more volatility ahead,” said OANDA’s Craig Erlam.

There was a glimmer of optimism for investors in comments from Fed vice chair Lael Brainard, who appeared to hint at a more cautious tone for policy as the hikes already announced work through the economy.

But SPI Asset Management’s Stephen Innes said traders were likely to be guarded in their reaction to the remarks.

“With the market in ‘fool me once, shame on me, fool me twice, shame on you’ mode, investors should be 100 percent defensive, erring to classical risk-off strategies as local conversations defer to risk-off,” he said in a commentary.

On currency markets, the dollar remained king as the United States lead the monetary tightening drive, and eyes are on the reaction in Tokyo as the yen drops towards the 145.90 level that last month saw massive government intervention.

The pound was also still under pressure, despite the Bank of England unveiling fresh measures to calm markets rocked by a UK budget, saying it would extend purchases of government bonds.

The news came as official data revealed British unemployment fell to a near 50-year low at 3.5 percent, although wages continue to be eroded by sky-high inflation.

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: DOWN 2.6 percent at 26,401.25 (close)

Hong Kong - Hang Seng Index: DOWN 2.2 percent at 16,832.36 (close)

Shanghai - Composite: UP 0.2 percent at 2,979.79 (close)

London - FTSE 100: DOWN 0.8 percent at 6,902.56

Pound/dollar: DOWN at $1.1020 from $1.1059 on Monday

Euro/dollar: DOWN at $0.9699 from $0.9708

Euro/pound: UP at 88.00 pence from 87.76 pence

Dollar/yen: DOWN at 145.62 yen from 145.72 yen

West Texas Intermediate: DOWN 0.2 percent at $90.91 per barrel

Brent North Sea crude: DOWN 0.1 percent at $96.11 per barrel

New York - Dow: DOWN 0.3 percent at 29,202.88 (close)