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Recession is getting louder, Asian stocks close down

Recession is getting louder, Asian stocks close down

The Asia-Pacific Stock Exchange closed down again on, ahead of the release of inflation data for the United States (US) for the September 2022 period.

Japan's Nikkei 225 Index closed 0.6% lower at 26,237.42, Hong Kong's Hang Seng fell 1.87% to 16,389.11, China's Shanghai Composite fell 0.3% to 3,016.36, and Australia's ASX 200 edged down 0 0.07% to 6,642.6.

Next, Singapore's Straits Times index fell 1.75% to 3,040.45, South Korea's KOSPI fell 1.8% to 2,162.87, and the Composite Stock Price Index (JCI) ended down 0.41% to 6,880.63.

From Japan, producer price index (PPI) inflation data for the September 2022 period rose to 9.7% ( year-on-year /yoy), from 9.4% in the same period in 2021.

This figure is higher than market expectations in the Trading Economics survey, which estimates the PPI of Sakura Country to fall to 8.8%.

Recession is getting louder, Asian stocks close down

Meanwhile, on a monthly basis ( month-on-month / mom), the PPI of Sakura Country also rose to 0.7% last month, from 0.4% in August. This figure is also higher than the market forecast of 0.2%.

Global market participants tend to welcome disappointment from the US PPI data last month which was reported to have risen 0.4% (mtm) and rose 8.5% (yoy). This increase was far above market expectations.

On a monthly basis, the index strengthened for the first time in three months. On an annual basis, the index is actually lower than the one recorded in August at 8.7% (yoy).

In addition to tending to respond negatively to the US PPI, global market participants also responded negatively to the minutes of the US central bank's Federal Open Market Committee (FOMC) meeting (Federal Reserve/The Fed).

The Fed said it was surprised by the rate of inflation that is still rising until now. The Fed then indicated that it expects higher interest rates to remain in place until prices drop.

"Participants saw that inflation was still too high and well above the 2% target set by the Committee. Participants emphasized that too little action to reduce inflation could cost much more," the minutes of the FOMC said, quoted from the Fed's website.

The Fed sees that the decline in inflation is slower than their expectations. US inflation hit 8.3% (yoy) in August, slightly lower from 8.5% (yoy) in July.

"A number of participants underlined the importance of taking a firm stance for as long as necessary. Historical experience has shown the dangers of ending tight policies prematurely," the paper reads.

With the increase in the PPI and the hawkish attitude of the Fed, market participants then expect that the Fed will still raise interest rates aggressively in November.

Based on the CME FedWatch tool, the market that expects the Fed's rate hike of 50 basis points (bp) has a 15.2% probability. Meanwhile, those who predict an increase of 75 bp have a probability of reaching 84.8%.

Recession is getting louder, Asian stocks close down

Meanwhile, market participants also tend to adopt a wait-and-see attitude ahead of the release of inflation data from the US consumer price index (CPI) for the period of September 2022.

Dow Jones analyst consensus predicts CPI as of September 2022 to rise 0.3% on a monthly basis. Up from the previous month at 0.1%. However, the annual inflation rate will slope to 8.1% from August 2022 at 8.3%.

The increase in the US CPI is predicted to be affected by the increase in the US PPI for the September 2022 period which was released earlier yesterday.

High inflation will reduce purchasing power, while high interest rates will hinder the expansion of the business world to household spending, so that the economy is threatened with a recession.

With interest rates held at high levels, there is a risk that the recession could be prolonged. 

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