The European Central Bank is expected to lift interest rates this week as it tries to battle soaring inflation, even as the region's economy faces an energy crisis and possible recession

Asian markets mixed as US jobs offset by recession fears

The European Central Bank is expected to raise interest rates this week as it tries to fight rising inflation even as the region’s economy faces an energy crisis and a possible recession. Copyright AFP.

Asian markets were mixed on Monday, as positive sentiment from the US jobs report was offset by growing concerns about an energy crisis in Europe, lockdowns in China and geopolitical tensions.

The closely watched payroll data for August showed a slowdown in employment growth and rising unemployment, which eased pressure on the Federal Reserve to sharply raise interest rates.

In response to these figures, traders lowered their expectations for a third consecutive three-quarter-point advance this month, with many now targeting 50 basis points.

“An increase in participation rates and a decline in average hourly earnings could be a preliminary sign that intense labor market tensions are starting to ease a bit,” said National Australia Bank’s Tapas Strickland.

He added that this “alleviates some of the concerns associated with other indicators, such as the availability of vacancies. Markets interpreted the release as reducing the chances of a 75 basis point upside.”

The news helped boost European markets and gave Wall Street momentum.

However, all three major indices reversed in New York after Russia’s Gazprom said it would not resume gas supplies to Europe, citing problems with the pipeline.

The announcement came on the same day that the G7 countries said they would work to cap the price of Russian oil exports as soon as possible, which would deprive the Kremlin of critical revenue for its war effort.

The news, which came after the close of European trading, exacerbated the energy crisis on the continent, fueled by sanctions against Moscow for its invasion of Ukraine in February.

It shocked the eurozone economy and inflated expectations that it would plunge into recession as the euro fell to a 20-year low against the dollar.

This problem has given the European Central Bank a huge headache – it is forced to raise interest rates in an attempt to contain runaway inflation.

Policymakers are due to announce a second consecutive increase at their meeting this week, with some observers betting on a 0.75 percentage point increase.

“The outlook for Europe is poor – things turned volatile late last week and will almost certainly get worse,” said Gordon Shannon of TwentyFour Asset Management.

“The ECB has just started catching up with the Fed in terms of rate hikes, but if we’re going into a long recession I think that’s slowing them down.”

– A “challenging time” for China –

Gazprom’s move helped boost oil prices on Monday, with purchases also supported by talk that OPEC and other major producers are considering cutting production at their meeting on Monday.

Investors also faced more bad news from China, where tens of millions of people in several cities have been locked down as part of the authorities’ strategy to fight the coronavirus.

The measures follow an extended shutdown in Shanghai earlier in the year that hit the world’s number two economy.

Observers say Chinese authorities are unlikely to budge ahead of a key Communist Party meeting in October, at which Xi Jinping is expected to be elected president for a third five-year term.

“After that, it’s unclear if China will start to abandon its zero-spread Covid policy,” NAB’s Strickland said.

“As long as the policy is in place, any stimulus measures are unlikely to succeed in difficult times for the Chinese property market and the economy as a whole.”

Hong Kong was the biggest loser in early Asian trading on Monday, with technology firms hurt by reports that the United States is considering imposing new restrictions on investment in Chinese firms.

Shanghai, Tokyo, Taipei, Manila and Wellington also fell, but Sydney, Seoul, Singapore and Jakarta saw gains.

– Key figures around 02:30 GMT –

Tokyo – Nikkei 225: DOWN 0.1% to 27,610.75 (hiatus)

Hong Kong – Hang Seng Index: DOWN 1.8% to 19,109.68.

Shanghai – Composite: DOWN 0.1% to 3184.25.

Dollar/yen: above 140.32 yen from 140.16 yen on Friday.

EUR/USD: DOWN $0.9908 from $0.9957.

Pound/Dollar: DOWN to $1.1470 from $1.1515.

Euro/lb: DOWN by 86.37p from 86.45p.

West Texas Intermediate: up 1.6% to $88.24 per barrel

Brent North Sea oil: up 1.5% to $94.41 a barrel

New York-Dow: DOWN 1.1% to 31,318.44 (close)

London – FTSE 100: up 1.9% to 7,281.19 (close)

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