Asia: Shares slip on gloomy outlook as Ukraine, recession risks weigh

[SHANGHAI] Asian shares fell on Friday (Apr 1) following the biggest quarterly drop in global equities in 2 years, as investors worried about the impact of the Russian-Ukrainian war and rising risks of recession.

On Thursday, Russian President Vladimir Putin struck back at Western sanctions on Moscow, threatening to halt contracts supplying Europe with a third of its gas unless they are paid in roubles. The move prompted Germany, the most reliant on Russian gas, to accuse him of "blackmail" as it activated an emergency plan that could lead to rationing.

Reflecting the gloomy mood as a result of supply disruptions and surging raw material costs, Japanese business confidence hit a 9-month low in the first quarter according to a Bank of Japan survey, with companies indicating they expect conditions to worsen further.

In Tokyo, the Nikkei was down 0.75 per cent in morning trade, while MSCI's broadest index of Asia-Pacific shares outside Japan was 0.70 per cent lower.

Hong Kong's Hang Seng dipped 1.1 per cent, while Seoul's Kospi lost about 0.6 per cent. Chinese blue-chips turned around from a lower open to rise 0.7 per cent.

MSCI's global share index, and US and European shares all notched their biggest quarterly drops since the outbreak of the Covid-19 pandemic in 2020 in the quarter that ended on Mar 31. Investors have been worried that surging price pressures could force global central banks into aggressive rate hikes, potentially triggering recessions.

But the quarterly drop in US shares masks a late comeback in the S&P500 index, which rallied from a near-13 per cent decline to finish the quarter off about 5 per cent, defying worries over tighter monetary policy and global instability, and in contrast to signals sent by bond markets.

"A seeming end to the Ukraine conflict would in many respects make it easier for the Fed to stick to its hawkish line given the rally in growth stocks, and related decline in credit spreads, means an improvement in financial conditions," said Christopher Wood, global and Asia equity strategist at Jefferies.

"Political pressure remains, for now at least, on the Fed to tighten."

Investors will be watching US March jobs data later on Friday for indications of wage inflation, in addition to the headline jobs figure.

The closely watched spread between US 2-year and 10-year notes was barely above zero on Friday morning, after briefly inverting.

An inversion in this part of the US yield curve is viewed as a reliable signal that a recession may follow in 1-2 years.

Benchmark 10-year notes last yielded 2.3781 per cent, from 2.325 per cent late on Thursday while the 2-year yield was a 2.3648 per cent, from 2.284 per cent.

In energy markets, oil prices stabilised following a plunge on Thursday triggered by Washington's announcement that it would make the largest-ever release from US emergency oil reserves, part of a broad effort to rein in galloping inflation.

While US crude was last down about 0.1 per cent at US$100.18 per barrel, global benchmark Brent crude edged 0.12 per cent higher to US$104.84.

The dollar, which has benefited from safe-haven flows and expectations of rising US rates, remained firm on Friday.

Against a basket of peers, the greenback was up 0.08 per cent at 98.396, and up 0.55 per cent against the yen at 122.33.

The euro inched higher to US$1.1069.

Gold was stable after its biggest quarterly gain in 2 years. Spot gold was last quoted at US$1,937.05 per ounce. REUTERS

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