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Asian stocks extend selloff on fears of economic downturn

economic downturn

An Asia-Pacific equity index shed about 2%, led by losses in Japan and in Chinese technology firms

Stocks extended a selloff Thursday as fears of an economic downturn frayed sentiment and spurred a flight to havens including bonds.

An Asia-Pacific equity index shed about 2%, led by losses in Japan and in Chinese technology firms. US and European futures retreated in the wake of a 4% plunge in the S&P 500 index, the biggest daily drop in almost two years.

Earnings reports from US consumer stalwarts stoked worries that high inflation is weighing on margins and consumer spending. Target Corp. sank the most since Black Monday in 1987, a day after Walmart Inc. also spiralled lower.

Federal Reserve officials reaffirmed that sharply tighter monetary policy lies ahead to cool economic activity and get price pressures under control.

Chicago Fed President Charles Evans said raising interest rates somewhat above the neutral level and stopping there should help bring inflation down.

Treasuries held a rally, bonds in Australia jumped and the dollar remained firm.

China’s Covid lockdowns are also buffeting markets, keeping oil at around $110 a barrel after a retreat this week on worries about demand.

The challenge from inflation for bellwether retailers weakens the argument that corporate earnings can help stem this year’s rout in stocks. Instead, global equities are sliding toward a bear market as recession fears mount.

We are pricing in a growth scare, Lori Calvasina at RBC Capital Markets told Bloomberg TV. The market is trying to find a bottom here. There is a lot of uncertainty in this market right now about whether or not that recession is going to come through or if it’s going to be another near-death experience.

Signs of stress are building in credit markets. Yield premiums on US investment-grade corporate dollar bonds jumped five basis points Wednesday, in one of their biggest moves this year, a Bloomberg index shows. They are now at their highest since mid-2020.

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