Equities drop on recession fears as inflation data looms

Markets mostly fell Tuesday as investors grow increasingly fearful that more big interest rate hikes will tip economies into deep recessions, with the mood also darkened by the worsening Ukraine war and worries over China's outlook.

With the focus on inflation, analysts said consumer price index data released later this week will be crucial to the direction of risk assets -- another big reading could spark a fresh equity selloff and surge in the dollar.

Investors had hoped that a series of bumper rate increases by the US Federal Reserve this year would begin to drag on the economy and slow runaway prices, allowing policymakers to slow down their pace of monetary tightening.

But a forecast-beating jobs report on Friday highlighted the tough work the central bank has in bringing inflation down from four-decade highs, and many observers warn a recession is virtually inevitable.

World Bank chief David Malpass said there was a real danger of a global contraction next year, adding that the surge in the dollar was weakening the developing nations' currencies and pushing their debt to burdensome levels.

And JP Morgan boss Jamie Dimon told CNBC that while the US economy was holding up now, it faced several headwinds including rising rates, surging inflation, Fed tightening and the Ukraine war.

He added that he saw a US recession in six to nine months, and that the S&P 500 could fall another 20 per cent.

Barings strategist Christopher Smart said it is little wonder investors enter the week in a dreary mood, especially with headlines from Ukraine signalling a further escalation in geopolitical tensions.

Of course, markets are meant to look ahead, but it's hard not to see the next few quarters bringing more of the same.

After another round of losses in New York, Asia again struggled.

Chip manufacturers globally took a pounding from new US export controls aimed at restricting China's ability to buy and make high-end chips with military applications.

The Philadelphia Stock Exchange Semiconductor Index saw its lowest close since late 2020, while Bloomberg News reported that $240 billion had been slashed from companies' market values worldwide.

'Volatility ahead'

Taipei led the losses in Asia -- diving more than four per cent -- as chip giant TSMC plunged 8.3 per cent, while a hefty selloff in Samsung Electronics dragged Seoul down 1.6 per cent. Tokyo was also sharply lower owing to a hit to tech firms.

All three markets had been closed Monday and were reacting to Friday's US announcement for the first time.

Hong Kong fell more than two per cent to below 17,000 points for the first time since late 2011, while Sydney,

Singapore, Mumbai, Bangkok and Jakarta were also lower.