Asia-Pacific markets trade lower as recession fears grow

Singapore’s non-oil exports fell by 9.2% compared with a month ago, a significantly bigger drop than the 3% expected, according to a Reuters poll.

This comes after the month-on-month reading fell by 3.7% in October.

On an annualized basis, non-oil exports for November fell 14.6%, also larger than expectations for a decline of 7.4% in a Reuters survey. The year-on-year reading fell by 5.6% in October.

— Jihye Lee

The au Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index fell to a seasonally adjusted 48.8 in December from a final 49.0 in the month of November, marking the lowest reading since October 2020.

“Manufacturing firms continued to struggle in the face of subdued demand conditions and severe inflationary pressures,” S&P Global said in its latest release.

A reading below 50 indicates contraction from the previous month, and above 50 indicates expansion.

A stronger expansion in services output for December was reflected in the services business activity index, which rose to 51.7 in December from a final reading of 50.3 in November.

— Jihye Lee

Retail and food services sales fell 0.6% in November after rising 1.3% in the prior month, according to the Commerce Department. That was below Dow Jones estimates of a 0.3% decline.

Excluding autos, retail sales dipped 0.2%, below Dow Jones estimates for a 0.2% gain in spending.

— Sarah Min

Investor concerns that the Federal Reserve’s aggressive rate hiking campaign will push the economy into a recession are growing on Wall Street.

“The Fed all year have been very consistent. They have to fight inflation, they’ve got to get it down, and they’re going to tighten financial conditions to do so,” said Huw Roberts, head of analytics at Quant Insight.

However, he said the U.S. equity markets are becoming more sensitive to real economic data, rather than financial conditions, as they head into the next calendar year.

“Increasingly, the 2023 main story will be about the real economy. In other words, just how hard a recession we’re going to get, can the Fed engineer a soft landing? Or will we get a full blown ugly, hard recession?” Roberts added.

— Sarah Min

Next year’s story for the stock market is all about earnings, which are going to fall significantly, said Morgan Stanley’s Mike Wilson. That rapidly slowing growth isn’t priced into the market yet, he said in an interview with “Squawk Box” Thursday.

“People assume earnings are going to come down, but it’s the magnitude of that decline and how fast it’s going to happen — we think that is where the surprise is,” said Wilson, the firm’s U.S. equity strategist. “That negative operating leverage that we see from that falling inflation… is what is going to hurt margins, and that’s irrespective of whether there is an economic recession.”

He’s predicting 11% decline in year-over-year growth for S&P 500 companies next year. While his year-end target for the index is 3,900, he anticipates it will drop to between 3,000 and 3,300 in the first quarter.

The earnings recession will be brought on by a whole host of reasons, including an economy that has been overstimulated, demand destruction from higher prices and the Federal Reserve’s rate hikes this year, Wilson said. There will also be a reaction from corporations.

“At some point confidence just fails and the corporations stop sending because they’re like, ‘We’ve got to batten down the hatches a little bit,'” he said.

— Michelle Fox