Asian stocks slide with oil on recession jitters; dollar drops

TOKYO (Reuters) - Asia stocks continued a decline from Wall Street on Tuesday, and U.S. long-term Treasury yields sank to a four-month low, pulling the U.S. dollar down against the yen and other currencies as investors worried about the risk of global recession.

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IPG Staff2

There were also jitters about an escalation in
Sino-U.S. tension with U.S. House of Representatives Speaker Nancy Pelosi set
to begin a visit to Taiwan against the objections of China, which regards the
self-governed island as a breakaway province.

Australian equities declined amid an uncertain outlook
for commodity demand - which also weighed on crude oil prices - while the local
dollar hovered near its highest versus its U.S. counterpart since mid-June with
the central bank widely expected to deliver a third consecutive half-point
interest rate hike later in the day.

The Australian and South Korean equity benchmarks
suffered losses of about 0.3% each, while Japan’s Nikkei tumbled 1.17%.

Chinese blue chips dropped 1.06% and Hong Kong’s Hang
Seng lost 1.1%.

Taiwan’s stock index slid 1.68%.

MSCI’s broadest index of Asia-Pacific shares retreated
0.8%.

U.S. e-mini stock futures pointed to a 0.31% lower
restart for the S&P 500, which stumbled 0.28% overnight.

The week began with China, Europe and the United
States reporting weakening factory activity, with that in the U.S. decelerating
to its lowest level since August 2020.

That sank crude, with Brent futures edging down to
$99.74 on Tuesday after losing almost $4 overnight. U.S. West Texas Intermediate
futures also eased to $93.67, extending Monday’s almost $5 slide.

“Data releases over the past 24 hours have provided
further evidence the global economy is slowing,” National Australia Bank
strategist Rodrigo Catril wrote in a note to clients.

“Signs of a slowdown are building” in the United
States, while “China’s reopening activity burst is over,” he said.

The benchmark 10-year U.S. Treasury yield fell as low
as 2.53% in Tokyo trade, the lowest since April 5, amid wagers the slowdown
could spur the U.S. Federal Reserve to ease its foot off the policy-tightening
pedal. The bonds also benefited from safety-seeking demand before Pelosi’s
Taiwan visit, analysts said.

That helped the U.S. dollar slide as low as 130.595
yen for the first time since June 6. The euro jumped as high as $1.0294, a
level not seen since July 5.

The Taiwan dollar slipped to its lowest level in more
than two years on the weaker side of 30 per U.S. dollar.

Meanwhile, the Aussie was more subdued, retreating
0.26% to $0.7009, but after hitting the highest since June 17 at $0.7048 in the
previous session.

Analysts polled by Reuters expect the Reserve Bank of
Australia to hike by 50 basis points both on Tuesday and again at its next
meeting in September as it races to rein in inflation.

Market participants also see a half-point bump later
as a certainty, and have priced an additional 37 basis points of tightening for
the September decision.

By Kevin Buckland / August 2, 2022 9:53AM