By Gina Lee
Investing.com – Asia Pacific stocks were down on Thursday morning, as the recent global equities rally eased. Volatile commodity prices added concerns to a market already dealing with record inflation and the impact of an ongoing war in Ukraine. U.S. Treasuries’ recovery from a recent selloff was also under scrutiny.
Japan’s Nikkei 225 fell 1.09% by 10:08 PM ET (2:08 AM GMT), with the Bank of Japan releasing the minutes from its last policy meeting earlier in the day.
South Korea’s KOSPI fell 0.75% while in Australia, the ASX 200 inched up 0.08%.
Hong Kong’s Hang Seng Index fell 0.77%.
China’s Shanghai Composite was down 0.62% and the Shenzhen Component fell 0.9%.
A recent rally in U.S. Treasuries was also on shaky ground, even as they clawed back some unprecedented losses. Buyers flooded the market, snapping up a sale of 20-year bonds, and the benchmark 10-year yield fell back to 2.3%.
The war in Ukraine, triggered by the Russian invasion on Feb. 24, shows no sign of ending, and concerns about the impact on the global economy led investors struggling to identify havens.
Russian President Vladimir Putin also advanced demands that dozens of countries use the Russian rouble to pay for natural gas purchases, causing European gas prices to swing sharply. The U.S. is also readying further sanctions on Russia that could be revealed as soon as Thursday.
The extreme volatility in commodity markets caused by the war in Ukraine, as well as the global response, is sapping liquidity, according to some of the world’s biggest trading houses.
However, the recent sharp rotation from bonds to equities could be losing momentum, and a more hawkish U.S. Federal Reserve to curb inflation also contributed to volatility.
“Markets are really latching onto these short-lived themes and that’s causing significant price movement,” Wells Fargo (NYSE:WFC) Investment Institute head of global asset allocation strategy Tracie McMillion told Bloomberg.
“We think that for the near term we are probably going to be able to avoid a recession, but we are growing a little bit more concerned about 2023.” Some equity investors could see the Fed’s tougher stance on inflation as a positive, at least for now, she added.
San Francisco Fed President Mary Daly said both a 50 basis-point interest-rate hike and a decision to begin asset tapering could be warranted at the next Fed policy meeting in May 2022. On her part, Cleveland Fed President Loretta Mester said Wednesday she supported front-loading rate increases in 2022.
“The Fed needs to build up its ammunition. Overall global growth is going to be dampened and they need to be able to cut rates later on should this have a greater-than-expected recessionary effect,” Matthews Asia portfolio manager Teresa Kong told Bloomberg.
U.S. President Joe Biden plans to reinstate exemptions from tariffs on about two-thirds of Chinese products that were previously granted waivers under his predecessor Donald Trump. Biden will also attend a NATO emergency summit in Brussels later in the day.