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Share markets slip on global financial tightening

Share markets slip

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 1.2%, Nikkei shed 1.4%, Chinese blue chips dipped 0.4%, S&P 500 futures edged up 0.4%, while Nasdaq futures added 0.3%

Asian share markets slipped on Monday following another drubbing for Wall Street as investors braced for a further drastic tightening in global financial conditions, with all the risks of recession that brings.

Concerns about financial stability added to the corrosive mix with all eyes on UK bonds, now that the Bank of England’s (BoE’s) emergency buying spree is over.

Prime Minister Liz Truss’ decision to fire her finance minister might help reassure investors, but her own fate is unclear with media reporting Tory lawmakers will try and replace her this week.

BoE Governor Andrew Bailey warned over the weekend that interest rates might now have to rise by more than thought just a couple of months ago.

The BoE was doing emergency bond-buying that’s technically identical to QE with one hand, while furiously raising the policy rate with the other, said analysts at ANZ in a note.

Monday’s market action will provide a test, not only for the survival of Truss’ low-tax vision, but also her political future, they said.

Sterling was quoted up 0.4% at $1.1219, but off the early high with trading sparse in Asia. FTSE futures fell 0.5%, and EUROSTOXX 50 futures 0.6%.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 1.2% and back toward last week’s 2-1/2 year low.

Japan’s Nikkei shed 1.4% and South Korea 0.1%. Chinese blue chips dipped 0.4% ahead of GDP data due on Tuesday.

S&P 500 futures edged up 0.4% after Friday’s sharp retreat, while Nasdaq futures added 0.3%.

While the S&P is 25% off its peak, BofA economist Jared Woodard warned the slide was not over given the world was transitioning from two decades of 2% inflation to a time of something more like 5% inflation.

$70 trillion of ‘new’ tech, growth, and government bond assets priced for a 2% world are vulnerable to these secular shifts as ‘old’ industries like energy and materials surge, reversing decades of under-investment, he wrote in a note.

He wrote: Rotating out of 60/40 proxies and buying what is scarce – power, food, energy – is the best way for investors to diversify.

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