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Asian market losses driven by recession, inflation fears

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Confidence among American consumers is at its lowest level in more than a year
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Fears of a recession caused by sharp interest rate hikes aimed at fighting soaring inflation sent Asian markets tumbling Wednesday, tracking a sharp drop on Wall Street.

The hefty selling came after more than a week of gains across the world caused by hopes that any signs of contraction could give central banks room to ease up on their pace of monetary tightening.

The fluctuations on trading floors show how tough it has become for investors to find their feet, just as financial policymakers struggle to find a balance between containing prices and maintaining economic growth.

Wednesday’s selling came after New York’s three main indexes tanked in reaction to data showing confidence among US consumers — who are a crucial driver of the world’s top economy — had fallen to its lowest level in more than a year.

The mood-sapping reading was partly driven by a feeling inflation would persist, suggesting consumers are not sure the Federal Reserve’s aggressive efforts to tame inflation will work.

The news overshadowed a surprise move by China to slash the quarantine period for incoming travellers, raising hopes for further relaxations that can allow the country’s giant economy to recover more quickly.

In early Asian trade, Hong Kong, Tokyo, Shanghai, Sydney, Seoul, Taipei, Jakarta and Wellington were all well down.

Top Fed officials on Tuesday tried to play down the chances of a recession, with the heads of the Fed in San Francisco and New York saying they were upbeat a soft landing could be achieved.

“I see us tapping on the brakes to slow to a more sustainable pace, rather than slamming on the brakes, going over the handlebars and having the proverbial recession,” San Francisco’s Mary Daly told an online event hosted by LinkedIn.

“I wouldn’t be surprised, and it’s actually in my forecast, that growth will slip below two percent, but it won’t actually pivot down into negative territory for a long period of time.”

– Threading a fine line –

But analysts were more sceptical, with Sim Moh Siong at Bank of Singapore saying “low US consumer expectations suggest weaker growth in (the second half of 2022) as well as growing risk of recession by year end”.

The Conference Board’s chief economist Dana Peterson warned the United States will likely see a recession in late 2022.

And Emily Weis, at State Street Corp, said: “The Fed still believes it can thread that very fine line between tightening financial conditions while not hurting the economy too much.

“We’re still not sure they’re going to be able to pull that off. That’s what we’ve seen reflected in the markets over the last month or so.”

Oil prices dipped though remain elevated following a run-up in recent days on expectations that demand will continue to rise — despite recessionary talk — and supplies remain tight owing to the ban on imports from Russia.

And while G7 leaders agreed to work on a price cap for Russian oil as part of efforts to cut the Kremlin’s revenues, observers warned that will not likely have a massive impact on prices.

“The easing of China’s zero-Covid policy helped oil to the third day of gains following a decent correction in recent weeks,” said Craig Erlam at OANDA. 

“As did reports that the UAE and Saudi Arabia are producing near capacity, in stark contrast to claims that both are holding back and could do more.”

He added that OPEC and other major producers were 2.7 million barrels per day below target in May, “taking the total shortfall under the agreement to more than half a billion”.

“Even sanctions being lifted on Iran and Venezuela can’t do much against that backdrop. It may well take a recession to return oil prices to sustainable levels any time soon,” he warned.

– Key figures at around 0230 GMT –

Tokyo – Nikkei 225: DOWN 1.1 percent at 26,759.99 (break)

Hong Kong – Hang Seng Index: DOWN 0.9 percent at 22,205.99

Shanghai – Composite: DOWN 0.1 percent at 3,404.32

Dollar/yen: DOWN at 136.10 yen from 136.20 yen Friday

Pound/dollar: UP at $1.2207 from $1.2187

Euro/dollar: UP at $1.0531 from $1.0525

Euro/pound: DOWN at 86.26 pence from 86.32 pence

West Texas Intermediate: DOWN 0.5 percent at $111.24 per barrel

Brent North Sea crude: DOWN 0.6 percent at $117.25 per barrel

New York – Dow: DOWN 1.6 percent at 30,946.99 (close)

London – FTSE 100: UP 0.9 percent at 7,323.41 (close) 

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Musk, Twitter get Oct. 17 trial in buyout fight

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Twitter is due to face off with Tesla boss Elon Musk on October 17 in the US state of Delaware in a buyout trial
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Twitter’s lawsuit to force Elon Musk to complete his $44 billion buyout bid is set to go to trial on October 17, a US judge has ordered, in a case with major stakes for both sides.

The trial is due to open in a court in the eastern state of Delaware and is set to last five days to decide whether Musk can walk away from the deal.

The Tesla boss wooed Twitter’s board with a $54.20 per-share offer, but then in July announced he was “terminating” their agreement on accusations the firm misled him regarding its tally of fake and spam accounts.

Twitter has countered by saying Musk already agreed to the deal and can’t back out now.

An order from the judge handling the case, Kathaleen McCormick, lays out an expedited schedule to resolve a fight that has left Twitter in limbo.

She reminds both sides that they “shall cooperate in good faith” on matters like handing over information to each other, a key topic that can result in delays. 

Billions of dollars are at stake, but so is the future of Twitter, which Musk has said should allow any legal speech — an absolutist position that has sparked fears the network could be used to incite violence.

Twitter blamed disappointing results last week on “headwinds,” including the uncertainty imposed on the company by Musk’s chaotic buyout bid.

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What’s with the slowdown in Canada’s tech ecosystems this year?

Canadian venture funding cooled in Q2 2022, but Alberta is still seeing record-level funding.

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As BetaKit reported at the end of 2021, that year was “undoubtedly a landmark year” for Canada’s tech scene. The sector broke an all-time venture capital funding record previously set in 2019, with firms raising a staggering $11.8 billion in Q3 alone.

So what’s with the slowdown this year?

BetaKit is reporting that the BC, Waterloo Region, and Toronto tech sectors are all showing signs of cooling in Q2, as tracked by briefed.in

On the west coast, BC’s venture funding and deal volume dropped to a six-quarter low, with startups raising $204.3 million collectively — a decrease of 62% compared to Q1 2022. Toronto saw a 69% drop from Q1 — a fairly dramatic drop after the banner year that was 2021.

Waterloo is a bit of a different story. While the region did see its lowest quarter for deal volume in three years, there was still an increase in investment over Q1. That said, most of this (96% according to BetaKit) was from one $537.7 million Series G extension closed by Faire, a retail startup. 

The one Canadian ecosystem that’s still flying high? Alberta. In Q2, companies raised $268.6 million through 12 deals – a 31% increase quarter-over-quarter, BetaKit reports. It remains to be seen if they’ll be hit with the same cooling as other ecosystems. 

Speaking to BetaKit, Golden Ventures partner Ameet Shah explained “if 2021 was the party, then 2022 stands to be a sobering experience for founders, employees, and investors alike.”

What contributed to this slowdown? Unsurprisingly, stock market slumps, the cryptocurrency rollercoaster, inflation, and overseas conflict all play factors in the current volatility. After the booming decade of the 2010s, this year seems to be an overall bust for the global tech sector, including Silicon Valley, with repeated announcements of layoffs. 

According to global labor trends aggregator Layoffs.fyi, 140,388 workers lost tech jobs since the start of the COVID-19 pandemic, as reported by BNN Bloomberg.

The Canadian tech sector is also facing layoffs — including the news that Shopify is letting go of approximately 10% of its workforce. Back in June, Wealthsimple laid off 13% of its staff.

As Deena Shakir, a partner at Silicon Valley-based VC firm Lux Capital explained to CBC News at June’s Collision Conference, “right now everyone who is innovating and/or investing in tech or in startups is trying to understand what exactly is happening in this moment.”

“We’re the topic of conversation at every partner meeting, and every lunch and coffee.”

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Sony trims annual profit forecast after Bungie purchase

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Sony Group now predicts net profit for 2022-23 will total 800 billion yen
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Sony trimmed its annual net profit forecast on Friday, partly due to acquisition expenses including the purchase of US game studio Bungie, creator of hits like “Halo” and “Destiny”.

The PlayStation maker announced in February it would buy Bungie for $3.6 billion, weeks after rival Microsoft unveiled a landmark pact to acquire “Call of Duty” maker Activision Blizzard.

Microsoft says its massive merger, valued at around $69 billion, will make it the third-largest gaming company by revenue, behind Tencent and Sony — marking a major shift in the booming gaming world.

Sony Group now predicts net profit for 2022-23 will total 800 billion yen ($6 billion), down from the 830 billion yen previously forecast.

It said the expected increase in acquisition expenses was “mainly due to the acquisition of Bungie, Inc. being completed earlier than the assumed timing”.

Lower sales of games by non-house developers will likely dent its overall sales figures this financial year, it said, but this would be “partially offset” by a weaker yen.

Exchange rates also boosted the conglomerate’s movie segment, chief financial officer Hiroki Totoki told reporters.

Customer traffic at US theatres has returned to pre-pandemic levels in some weeks, and Sony Pictures is hoping to score another box-office win after the runaway success of “Spider-Man: No Way Home”.

“We have high hopes for ‘Bullet Train’ featuring Brad Pitt,” Totoki said.

The movie division expects higher sales for anime streaming, “including the impact of the acquisition of Crunchyroll”, the world’s largest online library of Japanese animation.

– PlayStation 5 sales steady –

In the April to June quarter, the Japanese conglomerate posted a three percent year-on-year rise in net profit to 218 billion yen, with sales up around two percent to 2.3 trillion yen.

Sony has faced challenges rolling out its PlayStation 5 console, which remains difficult to get hold of more than 18 months since its launch in November 2020, in part due to pandemic supply chain disruption and the global chip shortage.

Sony sold 11.5 million PS5s last year, and in May Totoki said the firm was adapting to try and weather ongoing supply chain issues, including Covid-19 lockdowns in China. 

For the PS5, “the problem is more about supply than demand. The company is also facing problems transporting its products,” Hideki Yasuda, senior analyst at Toyo Securities, told AFP before the earnings release.

Meanwhile “the yen has turned lower in this quarter. This should be positive for the company,” he said, adding that a US economic slowdown could open up shipping spots, even though it poses risks overall for businesses like Sony.

In the first quarter of this financial year, Sony sold 2.4 million PS5 units, similar to the same period last year when it sold 2.3 million.

Sony also said last month it is launching a new brand that will offer PC gaming gear.

The gaming peripherals market of items used by players was valued at $3.88 billion globally in 2019 according to Grand View Research.

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