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Markets struggle as recession fears weigh heavily

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Oil prices are down on fears about the impact on demand from a possible recession, though analysts expect them to remain elevated owing to tight supplies
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Equities struggled Wednesday after a brief respite from last week’s painful rout across world markets, with recession fears continuing to build as central banks hike interest rates to combat decades-high inflation.

While Asia, Wall Street and Europe all enjoyed healthy gains on Tuesday, analysts warned the downbeat mood on trading floors means the selling is unlikely to end any time soon.

Fears about a global contraction have also put downward pressure on oil prices, despite China’s reopening moves, the US holiday driving season and tight supplies. 

Federal Reserve boss Jerome Powell’s two-day testimony to Congress this week will be pored over for an idea about officials’ plans for fighting runaway prices, which are being fanned by supply chain snarls, China’s lockdowns and the war in Ukraine.

Most observers expect them to hike rates by three-quarters of a point several more times this year, having announced such a move in June — the sharpest lift in almost 30 years.

However, while many believe the Fed’s front-loaded tightening drive is needed — allowing it to begin cutting sooner as price rises settle back — there is a building consensus that the world’s top economy is heading for a contraction next year.

“The Fed has entered into a policy cocktail that we would describe as hammer time,” Gene Tannuzzo, at Columbia Threadneedle Investments, told Bloomberg Television.

“You have to be planning defensively at this point. There are a lot of questions on all risk assets.”

– Crude prices drop –

In early Asian trade, Hong Kong, Singapore, Sydney, Seoul, Taipei, Jakarta and Manila all fell, while Tokyo and Shanghai were barely moved. There were small gains in Wellington.

Stephen Innes at SPI Asset Management said that while the selling from last week had abated, traders continued to fret over a recession and the prospect of more rate hikes, adding that the Fed could be more compelled to respond if oil prices surge again and push up inflation further.

“Even more worryingly from a policy perspective is that virtually every recession in the past three decades has been a function of a demand shock, but this is a supply shock; hence monetary policy is less potent,” he added.

“Despite the uptick in risk sentiment, it still feels we are eons away from shaking the event-driven bear market blues due to prevailing recession obsession headwinds.”

Oil prices were feeling the heat from recessionary fears, with both main contracts down more than three percent Wednesday, though Goldman Sachs said that with demand still outpacing supplies, the market remains tight.

“Investors should remember that Fed-induced slowdowns are simply a short-term abatement of the symptom, inflation, and not a cure for the problem, underinvestment,” it added.

Bets on the Fed’s rate hikes, and the Bank of Japan’s refusal to move from its policy of ultra-low rates, continues to pile pressure on the yen, which is sitting at a 24-year low above 136.50 to the dollar.

Japanese Prime Minister Fumio Kishida’s comment that it “is up to the central bank” how to maintain its easy money policy adding to pressure on the country’s unit though famed economist Nouriel Roubini said he expects Tokyo to take action if the yen hits 140.

“If you go well above 140, the BoJ will have to change policy and the first change in policy is going to be yield curve control,” he said referring to a policy of keeping long-term rates artificially at a chosen level.

“So I think another 10 percent fall in the yen will imply a change in policy,” he told Bloomberg Television at the Qatar Economic Forum.

– Key figures at around 0230 GMT –

Tokyo – Nikkei 225: FLAT at 26,255.95 (break)

Hong Kong – Hang Seng Index: DOWN 0.6 percent at 21,424.70

Shanghai – Composite: FLAT at 3,307.00

Euro/dollar: DOWN at $1.0508 from $1.0535 late Tuesday

Pound/dollar: DOWN at $1.2238 from $1.2273

Euro/pound: UP at 85.87 pence from 85.80 pence

Dollar/yen: DOWN at 136.25 yen from 136.64 yen

West Texas Intermediate: DOWN 3.5 percent at $105.70 per barrel

Brent North Sea crude: DOWN 3.4 percent at $110.76 per barrel

New York – Dow: UP 2.2 percent at 30,530.25 (close)

London – FTSE 100: UP 0.4 percent at 7,152.05 (close)

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Delayed Tokyo 2020 Olympics cost double original estimate

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Tokyo 2020 was held a year later than planned because of the pandemic
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The final price tag for last year’s Tokyo Olympics was more than double the city’s original 2013 estimate after a one-year coronavirus postponement added to the already hefty bill.

The organising committee said Tuesday the Games had cost 1.42 trillion yen, the equivalent of $13 billion at the time. At today’s rates, with the yen at a 24-year low against the dollar, the figure would be $10.4 billion.

Tokyo 2020 was held a year later than planned because of the pandemic — the first Olympics postponed in peacetime — and spectators were banned from nearly all events, which were held under strict Covid-19 countermeasures.

The Games cost twice the 734 billion yen that the Tokyo Games organisers had predicted in their bid to the International Olympic Committee in 2013, but less than the final pre-Games budget unveiled in December 2020.

Despite losing out on ticket sales, organisers saved some cash by simplifying events and avoiding the cost of hosting millions of fans.

The organising committee, which disbands at the end of June, said the event’s final cost was 200 billion yen less than projected in its pre-Games budget in 2020 and 29 billion yen less than the final slimmed-down costs prediction in December 2021.

“It’s up to everyone involved in this event to pass on the legacy of the Tokyo Olympics to the next generation,” said Tokyo 2020 chief Seiko Hashimoto.

Tokyo experienced a Covid-19 surge last year as the Olympics approached, fuelling fears the event could worsen outbreaks in Japan and possibly the world.

The northern Japanese city of Sapporo is bidding to host the Winter Olympics in 2030.

A March survey of Sapporo and the surrounding region showed that a majority of the public are in favour of holding the event.

Officials have ruled out holding a public referendum on the 2030 bid.

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US businessman John Textor completes Lyon takeover

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Lyon president Jean-Michel Aulas (R) and US businessman John Textor (L)
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Lyon president Jean-Michel Aulas said on Tuesday a deal had been struck for US businessman John Textor to complete a takeover of the seven-time French champions.

Eagle Football Holdings, a sports investment vehicle controlled by Crystal Palace shareholder Textor, is set to acquire a majority stake in the Ligue 1 club.

“We agreed, we shook hands overnight via video and at 3 a.m. Monday everything was signed,” said Aulas, adding that the board of directors had approved the deal.

The agreement will see Textor buy out minority shareholders Pathe and IDG Capital — who hold 19.36 percent and 19.85 percent stakes respectively — and a gradual sale of Holnest, the family holding company of Aulas, which holds 27.72 percent of the capital.

Aulas said he would continue as club president for “at least three years”.

“John wanted me to stay… it wasn’t an obligation but a wish of the fans” and of all those involved in the club, he said.

“OL… has stretched its wings beyond the borders, it has got a brand known everywhere, it is the 20th club in the world, so why would I show up and want to change any of that,” Textor told reporters.

“I believe in dreaming with your eyes wide open. Jean-Michel and I really want championship titles and winning Europe.”

Textor also owns Brazilian top-flight club Botafogo and Belgian second-division side RWD Molenbeek.

Lyon missed out on European competition for the second time in three seasons after finishing the 2021-22 campaign in eighth place under Peter Bosz.

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White House says concerned about recession but US economy strong

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US President Joe Biden's White House is worried about a downturn, but says the American economy is strong
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The American economy remains strong, a White House economist asserted Tuesday, while acknowledging President Joe Biden’s team is concerned about a possible recession.

With inflation soaring at the fastest pace in more than four decades, sending prices for gas and housing rocketing, Americans are feeling the pain and the Federal Reserve is cranking up interest rates to try to cool the economy, fueling fears of a sharp downturn.

Despite a contraction in the first three months of the year, core parts of the world’s largest economy remain in good shape, including the labor market and consumer spending, Cecelia Rouse, head of Biden’s Council of Economic Advisers said on CNBC.

“When we look at recession (risks) … that’s obviously a concern, but the bones of our economy are solid,” she said, noting that the United States is better positioned to face the challenges than most other nations.

On Sunday, Treasury Secretary Janet Yellen also tried to quell recession fears, saying a downturn is not “inevitable” even while the economy will slow as it “transitions to stable growth.”

Rouse said Biden is focused on the inflation challenge, which is related to the Covid-19 pandemic: “It’s not easy to turn back on a global economy.”

Global supply chain snarls have been a key factor in fueling the prices increases, and pandemic lockdowns in China are adding to the ongoing uncertainty.

But Russia’s invasion of Ukraine was a “game changer,” she said.

“We all hope the Fed can get inflation under control without ceding too much on maximum employment,” Rouse said “We all hope for the longed-for soft landing.”

The Fed last week implemented the third interest rate hike this year, the biggest in nearly 30 years, and promised more big increases in coming months.

– ‘Relatively healthy’ –

Richmond Federal Reserve Bank President Thomas Barkin said there is a risk of recession, but agreed there are many signs the economy remains strong.

“Data on today’s economy still looks relatively healthy. Tomorrow is of course unclear,” Barkin said Tuesday in a speech prepared for delivery to an event in Richmond.

However, he acknowledged that with the Fed raising interest rates and an uncertain outlook for the global supply chain, fears of a coming downturn are not surprising.

But “not all recessions are equal,” he said, and “it’s worth remembering that most other recessions aren’t that long or that deep.”

Getting the economy back to normal in the wake of the supply disruptions “doesn’t have to require a calamitous decline in activity.”

Barkin echoed comments from Fed chief Jerome Powell that the central bank has the tools and will do whatever it takes to bring down inflation, but he cautioned that “we may or may not get help from global events and supply chains. There is of course recession risk.”

Earlier Tuesday, during a discussion with the National Association for Business Economics, Barkin said it was not yet clear how fast and how far the central bank will have to move.

“You want to get back to where you want to go as fast as you can without breaking anything,” he said.

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