Asian stocks fall on economic concerns

Tokyo, Sydney, Seoul and Shanghai fell, while Hong Kong gained in early trading.

From a banking crisis still hovering just below the surface, to the realization that Russia has long-range missiles that are incredibly accurate and no one can stop, to the soaring tensions between China and the US, more sanctions against both Russia and China, and the likely further unraveling of world trade and the reemergence of higher inflation, the risks are enormous, said Clifford Bennett, chief economist at ACY Securities.

None of this paints a pretty picture. Yet this is the reality of the present moment.

The Japanese benchmark Nikkei 225 fell 0.5% in morning trading to 28,469.08. The Australian S&P/ASX 200 fell almost 0.1% to 7,317.70. The South Korean Kospi fell less than 0.1% to 2,488.69. The Hong Kong Hang Seng gained 0.7% to 19,745.80, while the Shanghai Composite lost 0.3% to 3,254.69.

Rising trade tensions between the US and China continue to weigh on market sentiment. Recent reports suggest the US has asked South Korean companies not to return chip orders to China if US-listed companies are banned from entering China, adding to uncertainty, ActivTrades’ Anderson Alves said.

The S&P 500 fell 1.6% on Tuesday to 4,071.63, breaking a week-long lull. The Dow Jones Industrial Average fell 1% to 33,530.83 while the Nasdaq index fell 2% to 11,799.16.

Bank of the First Republic had by far the largest loss in the S&P 500, and the stock nearly halved after it said customers withdrew more than $100 billion in the first three months of the year. That excludes $30 billion in deposits that major banks made to build confidence in their rival after the second- and third-largest U.S. bank failures in history shook confidence.

The magnitude of the decline in deposits led to renewed concerns about the US banking system and the risk of an economic slowdown in lending. That overshadowed First Republics beating analyst earnings expectations, and the stock fell 49.4%.

Most companies have beat expectations so far this reporting season, but the bar has been set pretty low. Analysts are predicting the worst drop in S&P 500 earnings since spring 2020, when the pandemic froze the global economy. That’s why Wall Street is as much, if not more, focused on what companies say about their future prospects as they have been on the past three months.

The economy is under pressure from high interest rates designed to control inflation. High rates can suppress inflation, but only by slowing down the entire economy and hurting investment prices. Large parts of the economy outside the labor market are already slowing or shrinking.

With so much uncertainty about whether inflation can return to the Federal Reserve’s target without triggering a recession, “we remain skeptical that markets are out of the woods,” Barclays strategists led by Stefano Pascale said in a report. They also pointed to the risk of something breaking in the financial system due to the high rates.

This was revealed in a report on Tuesday consumer confidence declined stronger than expected in April, to the lowest level since July. That’s a discouraging signal when consumer spending makes up the bulk of the U.S. economy.

The Federal Reserve meets next week and much of Wall Street expects it to raise interest rates at least one more time before pausing.

In the bond market, the yield on the 10-year Treasury fell from 3.50% late Monday to 3.39%. It helps set rates for mortgages and other important loans.

The two-year rate, which moves more based on expectations for Fed action, fell from 4.11% to 3.95%.

In energy trading, US crude added 41 cents to $77.48 a barrel. Brent oil, the international standard, rose 31 cents to $81.08 a barrel.

In currency trading, the US dollar fell from 133.72 yen to 133.54 Japanese yen. The euro was priced at $1.0981, a step down from $1.0977.

AP Business Writer Stan Choe contributed from New York.