Australian Services PMI Slips into Recession as RBA Rate Hikes Take Effect

Asia-Pacific stock markets are trading lower on Tuesday for a sixth straight session, following steep overnight sell-offs on Wall Street and in Europe.

Overseas investors are reacting to a sharp break on Wall Street overnight, which saw the blue chip Dow Jones Industrial Average falling more than 600 points in its worst day since June, as the summer buying spree faded and fears of aggressive interest rate hikes and a possible recession returned to Wall Street.

Meanwhile in Europe, a renewed spike in European energy prices stoked fears of recession and pushed bond yields higher, while driving the Euro to a 20-year low. Investors are reacting to an overnight surge in benchmark gas prices in the European Union. Gas prices have doubled in just a month to be 14 times higher than the average of the past decade.

In Asia, investors continued to fret over the shape of China’s economy after the Peoples’ Bank (PBOC) cut its lending rates. Stress in the property sector is the market’s biggest concern at this time, but investors are expecting to see growth in the services sector struggle as China’s zero-COVID polices remain in place.

Investors are also bracing for the end of the pandemic-linked export boom as supply chain logjams open up all over world. Meanwhile, a new problem has hit the radar in the form of power shortages due to droughts in parts of the country that are still trying to dig out from issued caused by the strict COVID-19 restrictions.

Japan’s Manufacturing Data Shows Slowest Factory Output Growth in 19 Months

Economic woes continued in Japan after a report showed Japan’s manufacturing activity growth slowed to a 19-month low, as new orders continue to decline. The report should encourage the Bank of Japan to keep its benchmark interest rate at ultra-low levels. However, it may force the Japanese government to implement fresh rounds of stimulus if the economy continues to weaken.

The drop in manufacturing activity growth wasn’t much of a surprise since the last trade balance report showed falling exports. Exports are the lifeblood of the Japanese economy so when they decline, a drop in new factory orders are sure to follow.

The major concern for investors was weak new business received by private sector firms. This is usually an indication of further weakness to come.

Australian Flash Services PMI Falls into Recession

Australia’s private sector economy shrank for the first time in seven months in August, according to Flash Services PMI data. The final reading will be published next week.

Traders are blaming rapidly rising interest rates by the Reserve Bank of Australia (RBA) for the decline. The news could put a dent in the RBA’s plan to continue to raise interest rates aggressively in September.