Asia-Pacific markets trade lower as recession fears grow

UBS upgraded its outlook for China’s 2023 gross domestic product to 4.9%, versus 4.5% previously, according to its chief China economist Wang Tao, citing an earlier and faster reopening in the nation.

Wang said the firm expects a weaker fourth-quarter GDP for 2022, downgrading its full-year forecast to 2.7% from 3.1%, pointing out November’s weakened growth with a recent surge in Covid cases.

The firm added that the Central Economic Work Conference will likely prioritize stabilizing growth as well as supportive macro policies for the upcoming year.

“We expect fiscal policy to stay proactive with small increase of headline deficit and new special LG [local government] bonds, monetary and credit policy to keep supportive with continued ample liquidity but unlikely any additional policy rate cut,” Wang said in the note.

— Jihye Lee

Singapore’s latest trade data suggests exports could continue to face headwinds in the short term, according to Oxford Economics.

“The bad news is that worse is to come,” it said in a Friday note. “We expect external demand to soften further in the first half of 2023 as the U.S. and eurozone slip into shallow recession,” it said.

Oxford Economics added the sharp fall of Singapore’s non-oil exports in November shows the external sector has “graduated from a slowdown to a slump.”

It added that any revival in growth due to China’s early reopening will not be enough to fully offset weakened demand globally.

— Jihye Lee

Citi announced it will exit its consumer banking business in China, a move that will affect about 1,200 employees in the country.

The departure will also impact consumer products and channels including deposits, insurance, mortgages, investments, loans and cards, Citi said. It said however, the exit does not include its institutional business in China.

The company said it will start the process of winding down of its consumer banking business while engaging with regulators.

The bank first announced the plan to exit China in April 2021 as part of a broader plan to withdraw from a slate of markets across Asia, Europe, the Middle East and Africa and Mexico.

— Jihye Lee

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

Big Tech stocks have been hit hard by this year’s sell-off, but Morgan Stanley thinks the current share price weakness of one stock presents an “opportunity to own one of the highest quality tech platforms.”

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— Zavier Ong

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