Oil-induced equity slumps spreads to Asia

Asian markets see red as oil flies upwards

WTI’s rise to 7-year highs spooked US equity markets overnight, with nerves increasing that the Q3 earnings season will contain tempered expectations for 2022. With equity valuations so pimped up, thanks to the world’s central banks, any changes to the assumed post-pandemic boom growth story could have an outsized negative effect. Of course, even after the Fed taper, interest rates will still be near zero, as they will be in most of the developed world. That is underlyingly supportive of equities, but markets are FOMO herd-like, I mean “forward-looking.” A wobbly earnings season could have the street looking for the exit door. If US bond yields resume their rise this week, that noise will increase.

Overnight, the S&P 500 retreated by 0.69%, with the Nasdaq losing 0.64% and the Dow Jones falling by 0.74%. Notably, the futures on all three have continued south in Asia, all three indexes slumping by around 0.50%. Although volumes were lighter overnight due to the partial US holiday, there does seem to be less buy-the-dip mania than in times past. Everything likely hinges on the opening of the US bond market this evening.

Asia rose yesterday on an individual series of positive news at a national level. That has evaporated today after the surge in oil prices overnight. The Nikkei 225 has fallen by 1.0% with the Kospi slumping by 1.45%. Mainland China’s Shanghai Composite has retreated by 1.0% as well with the CSI 300 falling by 0.45% with the Hang Seng tumbling by 1.20%.

In regional markets, Singapore is down by 0.55% with Taipei retreating by 1.15%. The energy and commodity price squeeze has left Indonesia and Malaysia as bright spots in Asia today. Jakarta is 0.60% higher, while Kuala Lumpur has climbed 0.45%. An aggressive reopening announced yesterday by Thailand has sent the SET 50 0.75% higher today. With their high beta to US markets, Australian markets have headed south in sympathy today. The ASX 200 and All Ordinaries have fallen by 0.45%.

European markets are unlikely to take solace from the performance of Asia today, especially as Europe and the UK have a particularly soft underbelly when it comes to energy prices. Continental markets are likely to open lower once again. US markets have the JOLTS and three Fed speakers to negotiate, but most importantly, any recovery will be dependant on US bond yields not rising as they return to work today.

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