Asia petrochemical shares, oil slump on recession fears, strong US dollar

Pearl Bantillo


SINGAPORE (ICIS)–Shares of petrochemical companies in Asia were trading lower early Wednesday afternoon, with oil prices down by more than 1%, on demand concerns amid growing adverse global economic ramifications of a strong US dollar.

Recession risks are intensifying amid the strong US dollar and rising borrowing costs around the world as central banks are generally expected to continue hiking interest rates to tame surging inflation.

At 05:40 GMT, Brent crude was at $84.80/bbl, while US crude was at $77.15/bbl, both down by about 1.7% from the previous session.

The US dollar index – a measure of the currency’s strength against the euro, British pound, Japanese yen, Canadian dollar, Swedish kroner and Swiss franc – is currently at 114.59, hovering at a 20-year high on the US Federal Reserve’s aggressive monetary tightening stance to combat surging inflation.

Asian currencies have tumbled to multi-year lows, with the Japanese yen and the Indian rupee recently slumping to record lows, causing costs of imported raw materials to spiral up, hitting demand and threatening regional production.

The US Fed had hiked its key interest rates by a hefty 75 basis for the third time this year, with a fourth increase of the same magnitude likely in November.

In contrast, Japan’s central bank has not budged and was maintaining its ultra-low interest rates, causing the yen to plunge recently to a 24-year low of above Y145 to the US dollar.

“The Fed’s projection to deliver some 125 bps of hikes over the next four meetings suggests smaller hikes are also near, especially if it follows through with a fourth 75 bps hike in November,” DBS Research senior foreign exchange strategist Phillip Wee said on a note on Wednesday.

Focus article by Pearl Bantillo

Thumbnail image: US dollar banknotes – 27 September 2022 (By Daniel Irungu/EPA-EFE/Shutterstock)

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