Asian markets slide as recession risks remain high

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By Scott Murdoch

HONG KONG (Reuters) - Asian markets sold off sharply on Friday and Europe looked set to follow as investors braced for a hefty U.S. rate hike next week amid growing concerns of a global recession following warnings from the World Bank and the International Monetary Fund.

MSCI's broadest index of Asia-Pacific shares outside Japan opened Friday in negative territory and sold off during the day.

It was last down 1.1%, after U.S. stocks ended the previous session with mild losses.

In the region, Australian shares were down 1.34% on Friday, while Japan's Nikkei stock index slipped 1%.

Hong Kong's Hang Seng Index was down 1.1% while China's CSI300 Index was 0.86% lower.

"There is pain emerging in the equities markets and we are entering a phase where there will be further liquidation because rates are going to stay higher for longer," said Suresh Tantia, senior investment strategist at Credit Suisse.

"A strong U.S. dollar does not help Asian markets and it will be a further negative for this region's equity markets."

The dollar dropped 0.14% against the yen to 142.95, after being down by 0.4% earlier in the session..

Japan's threats of currency intervention might slow but not stop the yen from hurtling towards three-decade lows before the year end, market analysts and fund managers say.

The euro was down 0.1% on the day at $0.9987, having lost 0.51% in a month, while the dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was up at 109.83.

China's yuan weakened past the psychologically important 7 per U.S. dollar level for the first time in two years.[CNY/]

In early European trades, the pan-region Euro Stoxx 50 futures were down 0.76% at 3,517, German DAX futures were down 0.93% at 12,849, FTSE futures were down 0.61% at 7,247.5.

U.S. stock futures, the S&P 500 e-minis, were down 0.7% at 3,874.8.

The global economic outlook remains downbeat and some countries are expected to slip into recession in 2023, but it is too early to say if there will be a widespread global recession, the IMF said on Thursday .

The IMF in July revised down global growth to 3.2% in 2022 and 2.9% in 2023. It will release a new outlook next month.

By comparison, the World Bank said the world could be edging towards a global recession in 2023 as central banks across the world simultaneously hike interest rates to combat persistent inflation.

The world's three largest economies - the United States, China, and the euro zone - have been slowing sharply, and even a "moderate hit to the global economy over the next year could tip it into recession,", it said.

In China, data on Friday showed surprising resilience in August, with faster-than-expected growth in factory output and retail sales shoring up a fragile recovery, but a deepening property slump and cooling exports are weighing on the outlook.

Despite the better readings, investors are still focused on China's pursuit of a zero COVID strategy, which nearly pushed the economy into contraction in the second quarter.

"China's near term economic activity hinges on its COVID policies, how they manage it. With a more pragmatic approach, the market expects there would be more confidence that would inject more optimism into the market," said Marcella Chow, a global market strategist at JPMorgan (NYSE:JPM) Asset Management.

In Asian trade, the yield on benchmark 10-year Treasury notes stood at 3.4533% compared with its U.S. close of 3.459% on Thursday.

The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 3.8925% compared with a U.S. close of 3.873.

Those yields hit a new 15-year high after mixed U.S retail sales and jobless claims data, which analysts said reinforced the case for aggressive Federal Reserve rate hikes.

Markets are currently fully pricing in a 75 basis point rate hike next week, economists said.

U.S. crude ticked up 0.31% to $85.36 a barrel. Brent crude rose to $91.24 per barrel.

Gold was slightly lower. Spot gold was traded at $1662.49 per ounce. [GOL/]