Asia-Pacific markets are trading lower as recession fears deepen

Japanese factory activity in December is the lowest since October 2020

The au Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index fell to a seasonally adjusted 48.8 in December from a record 49.0 in November, its lowest level since October 2020.

“Manufacturing companies continued to struggle with weak demand and severe inflationary pressures,” S&P Global said in its latest release.

A reading below 50 indicates contraction compared to the previous month and above 50 indicates expansion.

Stronger growth in service sector output in December was reflected in the services business activity index, which rose to 51.7 in December from a final reading of 50.3 in November.

— Jihye Lee

Retail sales in November are weaker than expected

Retail and food service sales fell 0.6% in November, after rising 1.3% in the previous month, according to the US Department of Commerce. That was below Dow Jones’ estimates of a 0.3% decline.

Excluding cars, retail sales fell 0.2%, below Dow Jones’ estimates for a 0.2% increase in spending.

— Sarah Min

Concerns about the recession are mounting on Wall Street

Investor concerns that the Federal Reserve’s aggressive rate hike campaign will push the economy into recession are growing on Wall Street.

“The Fed has been very consistent all year. They have to fight inflation, they have to get it down, and they are going to tighten financial conditions to do that,” said Huw Roberts, chief of analysis at Quant Insight.

However, he said US stock markets become more sensitive to real economic data, rather than financial conditions, as the next calendar year progresses.

“Increasingly, the main story of 2023 will be about the real economy. In other words, no matter how hard a recession we’re going to get, can the Fed deliver a soft landing? Or are we going to have an utterly ugly, hard recession? Robert added.

— Sarah Min

Earnings recession will surprise investors and bring the market down in 2023, says Mike Wilson

Next year’s story for the stock market is all about earnings, which will fall significantly, said Morgan Stanley’s Mike Wilson. That rapidly slowing growth has not yet been priced into the market, he said in an interview with “Squawk Box” on Thursday.

“People assume earnings will fall, but what matters is the size of that decline and how fast it goes — we think that’s where the surprise is,” said Wilson, the company’s U.S. equity strategist. “That negative operating leverage that we’re seeing from falling inflation… is what’s going to hurt margins, and that’s regardless of whether there’s an economic recession.”

He predicts an 11% drop in annual growth S&P 500 companies next year. While his year-end target for the index is 3,900, he expects it to fall to between 3,000 and 3,300 in the first quarter.

The earnings recession will be caused by a slew of reasons, including an economy that is overstimulated, demand destruction from higher prices and the Federal Reserve’s interest rate hikes this year, Wilson said. There will also be a response from corporations.

“At some point, trust just fails and the companies stop steering because they say, ‘We need to close the shutters a bit,'” he said.

— Michelle Fox

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