San Francisco Frontiers - Asian stocks retreat on fears of recession from Covid damage

World markets have been volatile for much of 2022, fuelled by uncertainty over supply chain snarls due to China's lockdowns, inflation pressures and anxiety over Russia's invasion of Ukraine.

Wall Street stocks closed Friday with a robust rally on the tech-rich Nasdaq after a tumultuous week that saw markets fluctuate based on US inflation data and an ongoing slump in Chinese exports.

One of the main drivers of volatility is China's continued lockdowns. Economic engine Shanghai in particular has been under strict virus restrictions since April, shuttering factories and pausing port activity.

The extent of the economic haemorrhaging was revealed Monday when China's National Bureau of Statistics announced that retail sales had slumped by 11.1 percent on-year in April and its industrial production sank 2.9 percent -- the lowest showing since March 2020.

"It is clear that the impact of lockdowns, or the fear of lockdowns, overwhelmed any economic easing, and the Shanghai lockdown had ripple effects across the nation," said Wei Yao, head of research for Asia Pacific and chief economist at Societe Generale SA, according to Bloomberg.

The urban unemployment rate also climbed to its highest level in more than two years -- which Wei said will be of particular worry to China's leadership.

"If this set does not raise the urgency of adjusting the zero-Covid measures to allow the economy to normalize, we don't know what will," she said.

- Risk of recession -

Beijing's staunch adherence to its zero-Covid strategy has reverberated across the world, snarling global supply chains, agitating commodity prices and spiking investor fears.

"The market continues to trade on very short-term recessionary signals. It is very 'noisy,' keeping intraday volatility high with 150–250-point swings (being) common," said Stephen Innes of SPI Asset Management.

"Indeed, this is the hallmark of a market filled with air pockets which have left more than a few investors licking their wounds."

Markets in Asia were mixed through the day, while Frankfurt, Paris and London opened down.

Economist Clifford Bennett of ACY Securities said "there is a very real risk, even likelihood of a triple Northern Hemisphere recession across the US, Europe and China simultaneously and virtually immediately".

He added that all eyes will be on how the Federal Reserve acts in the coming months, specifically whether it will further tighten monetary policy to combat surging inflation.

"Regardless of the Fed's action –- aggressive or mild, expect lower stock market values overall," Bennett said.

The uncertainty has also sent oil prices into a slump, with the US crude benchmark trading at below $110 a barrel throughout the day.

- Key figures at around 0720 GMT -

Hong Kong - Hang Seng Index: UP 0.2 percent at 19,940.28

Shanghai - Composite: DOWN 0.3 percent at 3,073.75 (close)

London - FTSE 100: DOWN 0.4 percent at 7,389.93

Tokyo - Nikkei 225: UP 0.5 percent at 26,547.05 (close)

West Texas Intermediate: DOWN 0.6 percent at $109.78 per barrel

Brent North Sea crude: DOWN 1.0 percent at $110.46 per barrel

Euro/dollar: DOWN at $1.0415 from $1.0417 at 2130 GMT Friday

Pound/dollar: DOWN at $1.2235 from $1.2262

Euro/pound: DOWN at 85.13 pence from 84.92 pence

Dollar/yen: DOWN at 129.34 yen from 129.19 yen

New York - Dow: UP 1.5 percent at 32,196.66 (close)

K.Gray--SFF