TOKYO (`) – Asian stocks fell mostly on Wednesday after worries about the US banking system sparked a decline on Wall Street and worries about Chinese economic growth.
Japan’s benchmark Nikkei 225 lost 0.2% to 32,323.31 in morning trade. Australia’s S&P/ASX 200 was little changed, up less than 0.1% to 7,316.60. South Korea’s Kospi was up nearly 1.0% to 2,598.96. Hong Kong’s Hang Seng fell 0.4% to 19,105.19, while the Shanghai Composite fell 0.4% to 3,247.64.
Clifford Bennett, chief economist at ACY Securities, called the export data from China “quite alarming,” noting it was the sharpest drop in three years and reflected the state of the world economy, not just China.
“Global demand is falling drastically,” he said.
“It is now very likely that we will all be surprised at how severe this global economic downturn will be. The world’s three major economies – the US, China and the EU – are leading the downtrend.”
On Wall Street, the S&P 500 fell 19.06, or 0.4%, to 4,499.38 and was down almost three times as much at times. It was the index’s fifth loss in the past six days after surging for the first seven months of the year.
The Dow Jones Industrial Average fell 158.64, or 0.4%, to 35,314.49 after reversing an earlier 465-point loss. The Nasdaq Composite lost 110.07, or 0.8%, to 13,884.32.
In the US, bank stocks fell after Moody’s downgraded the credit ratings of 10 small and mid-cap companies. It listed concerns about their financial strength, from the impact of higher interest rates to the trend towards working from home, which is causing office buildings to sit empty.
The Federal Reserve has raised interest rates to their highest level in more than two decades hoping to curb inflation. One effect of high interest rates is that they significantly slow down the entire economy, which increases the risk of a recession.
The significantly higher interest rates have hit the banks particularly hard.
While Moody’s downgraded the credit ratings of 10 banks and put six others under scrutiny, he said the rapid rise in interest rates had created conditions that had hurt profits across the industry.
Higher interest rates also diminish the value of investments made by banks when interest rates were extremely low. Such conditions contributed to three high-profile US bank failures last spring, which shook confidence in the system.
Moody’s also said it could face problems for banks with many commercial real estate loans, which are at risk as the work-from-home trend keeps people away from their offices.
“This comes as a mild US recession looms in early 2024 and asset quality is expected to decline from solid but unsustainable levels,” Moody’s Jill Cetina and Ana Arsov wrote in a report.
M&T Bank, one of the banks whose credit rating was downgraded, fell 1.5%. Northern Trust, one of the banks Moody’s says it is reviewing for a possible downgrade, fell 1.6%.
Other larger banks, whose creditworthiness was not impaired, also fell. Bank of America fell 1.9%.
The US government will release data on this later this week Consumer and wholesale inflationwhich could influence what the Federal Reserve does next with interest rates.
The hope on Wall Street is that the slowdown in inflation since it topped 9% last summer will help convince the Fed No further rate hikes are required. Economists expect Thursday’s data to show consumer prices rose 3.3% year-on-year in July, an acceleration from June’s inflation rate of 3%.
However, some economists and investors say bringing inflation all the way down to the Fed’s 2% target will probably be the hardest part. They say Wall Street is too quick to believe in a “soft landing” for the economy and that the S&P 500’s 19.5% gain in the first seven months of this year is overdone.
In the bond market, the 10-year Treasury yield fell to 4.02% from 4.10% late Monday. It helps set interest rates on mortgages and other loans.
The two-year Treasury yield, which is more in line with Fed expectations, fell to 4.75% from 4.79%.
In energy trading, the reference price for US crude fell 13 cents to $82.79 a barrel. Brent crude, the international standard, fell 9 cents to $86.08 a barrel.
In forex trading, the US dollar fell to 143.31 Japanese yen from 143.36 yen. The euro cost $1.0963, up from $1.0960.
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` business journalist Stan Choe contributed.
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