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Saturday, July 2, 2022
Stocks & Shares

Asian shares drop as US futures slide

shares drop

MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.3%, Japan’s Nikkei fell 0.4% and Chinese blue chips eased 0.3%

Asian shares slipped on Tuesday as relief at a rally on Wall Street was quickly soured by a slide in US stock futures, while the euro held near one-month highs as odds narrowed on a July rate rise by the European Central Bank.

After ending Monday firmer, Nasdaq futures lost 1.4%, with traders blaming an earnings warning from Snap which saw shares in the Snapchat owner tumble 28%.

S&P 500 futures also slipped 0.8%, surrendering some of Monday’s 1.8% bounce.

MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.3% in hesitant trading. Japan’s Nikkei fell 0.4% and Chinese blue chips eased 0.3%.

Markets had taken some comfort from US President Joe Biden’s comment on Monday that he was considering easing tariffs on China, and from Beijing’s promises of stimulus.

China’s zero-Covid policy, with attendant lockdowns, has already done considerable economic damage.

Following disappointing April activity data, we have downgraded our China GDP forecast again and now look for 2Q GDP to contract 5.4% annualised, previously -1.5%, analysts at JPMorgan warned. Our 2Q global growth forecast stands at just 0.6% annualised rate, easily the weakest quarter since the global financial crisis outside of 2020.

Early surveys of European and US manufacturing purchasing managers for May due on Tuesday could show some slowing in what has been a resilient sector of the global economy.

Japan’s manufacturing activity grew at the slowest pace in three months in May amid supply bottlenecks, while Toyota announced a cut in its output plans.

Analysts have also been trimming growth forecasts for the US given the Federal Reserve seems certain to hike interest rates by a full percentage point over the next two months. The hawkish message is likely to be driven home this week by a host of Fed speakers and minutes of the last policy meeting due on Wednesday.

The European Central Bank is also turning more hawkish, with bank president Christine Lagarde surprising many by opening the door for a rate rise as early as July. That saw the euro at $1.0670, having bounced 1.2% overnight in its best session since early March. It now faces stiff chart resistance around $1.0756.

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