[Asia Economy Reporter Jeong Hyunjin] As the US Federal Reserve (Fed) and major central banks around the world declared their intention to continue monetary tightening next year, fears of an economic recession have intensified. Last month, key economic indicators such as US retail sales fell much more than expected, increasing anxiety that the 'R fear' would materialize, causing global stock markets in the US and Europe to plunge.
On the 15th (local time) in the New York stock market, the Dow Jones Industrial Average closed at 33,202.22, down 2.25% (764.13 points) from the previous session. The S&P 500, focused on large-cap stocks, fell 2.49% (99.57 points) to 3,895.75, and the tech-heavy Nasdaq dropped 3.23% (360.36 points) to 10,810.53. The Dow recorded its worst day since September, while the S&P 500 and Nasdaq experienced their largest declines since November, according to foreign media reports.
Following the US stock market, the pan-European Euro Stoxx 600 index also closed down 2.85% at 429.91, marking its largest drop since May.
◇ECB·BOE Cut Rate Hikes but Maintain Tightening Stance
As major countries signaled their intention to continue raising interest rates next year, stock markets declined. The European Central Bank (ECB) and the Bank of England (BOE) both implemented a 'big step' (a 0.50 percentage point increase in the benchmark interest rate) in line with the Fed's decision the previous day. The ECB raised its benchmark rate to 2.5%, the highest level since 2008, while the deposit rate and marginal lending rate were also increased to 2.0% and 2.75%, respectively. The BOE raised its benchmark rate for the ninth consecutive time since December last year, from 3.0% to 3.5% annually.
The size of the hikes was smaller than before, but they still showed a commitment to continue monetary tightening to control inflation. ECB President Christine Lagarde emphasized at a press conference, "We have judged that the benchmark rate needs to be raised at a fairly steady pace," adding, "We will maintain the path, and a one-off move is not enough."
This aligns with Fed Chair Jerome Powell's statement the previous day that rate cuts would not be considered until clear evidence of inflation decline is seen, saying, "There is still a way to go." The Fed also released a dot plot indicating it plans to raise the current benchmark rate of 4.25-4.5% to 5.1% next year, signaling another round of aggressive monetary tightening.
In addition to the ECB and BOE, the Swiss National Bank (SNB) raised its benchmark rate by 0.5 percentage points from 0.5% to 1.0%. The Norwegian central bank also raised its benchmark rate by 0.25 percentage points to 2.75%.
Concerns are emerging that the possibility of a soft landing?controlling inflation without a recession?is diminishing due to the stance of major central banks. Mona Mahajan, Chief Investment Strategist at US securities firm Edward Jones, told Bloomberg, "The market's focus is on 'what is happening to the economy' and 'is the Fed pushing us into a recession?'"
◇US Consumption and Production Freeze... Recession Fears Rise
Adding to the cold shower for the stock market was the rapidly cooling US economic indicators. The US Department of Commerce announced that November retail sales fell 0.6% from the previous month, the largest decline in 11 months since December last year (-2.0%).
The decline was larger than the expert forecast of -0.2% compiled by Bloomberg. On the same day, US industrial production for November decreased by 0.2% month-on-month. Manufacturing production also shrank by 0.6% in November, turning to a decline for the first time in five months since June.
Foreign media such as Bloomberg and The Wall Street Journal (WSJ) evaluated these indicators as the result of the Fed's efforts to curb inflation through rate hikes but also expressed concerns about a recession due to continued tightening. Bloomberg reported, "Just a few months ago, bad economic data was seen by investors as a positive signal that the Fed's rate hikes to curb inflation were working as intended," but "now many investors worry that the Fed's excessive tightening could lead to a recession next year."
Some predict that as recession fears grow, central banks may find it difficult to maintain a hawkish stance. Morgan Stanley predicted that the Fed would likely stop raising rates around February next year due to economic deterioration.
Nadia Lovell, Senior Strategist at UBS, said, "The market decline today is not surprising. The market traded with hope that the Fed would not do what it said it would," adding that a recession has not yet been priced in and expects a re-pricing in the first half of next year as this is reflected.
Quincy Crosby, Chief Strategist at LPL Financial, said, "The stock market is now factoring in a recession," and "it is rejecting the possibility of a soft landing mentioned by Chair Powell." Edward Moya, Senior Market Analyst at OANDA, analyzed, "The labor market may not collapse, but it is becoming clear that consumption and manufacturing are in recession."
The cold wave sweeping global stock markets is continuing in South Korea as well. The KOSPI opened down 1.32% at 2,329.75 and is reducing its losses. The Korean won to US dollar exchange rate started at 1,318.76, up 15.9 won from the previous session, with the rise narrowing.
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