To The Moon

Hong Kong stocks dropped from an almost four-week high on concern surging crude-oil prices will undermine efforts by global central banks to combat inflation, adding to the risk of a recession.

The Hang Seng Index fell 0.6 per cent to 20,276.65 as of 11.57am local time after closing at its highest since March 7 a day earlier. The Hang Seng Tech Index slid 1.58 per cent.

Trading was light before a public holiday on Wednesday, when the Hong Kong and mainland China markets will be closed. Trading volume on the city’s exchange was about 20 per cent below the 30-day average for this time of the day, according to Bloomberg data.

Meituan slid 4.07 per cent to HK$134, and Alibaba Group Holding lost 3.2 per cent to HK$95.40. Chinese sportswear maker Li Ning slumped 5.7 per cent to HK$57.2, and Wuxi Biologics lost 3.3 per cent to HK$45.75. CNOOC advanced 2.3 per cent to HK$12.2, and Semiconductor Manufacturing International Corp rallied 7 per cent to HK$21.40, extending gains spurred by China’s probe into Micron Technology.

“Sustained higher oil prices are a real headache for the Fed. Further complicating a landscape of reduced but still far too high inflation,” said Clifford Bennett, chief economist at ACY Securities. “The Fed will be hiking aggressively even as the economy slows further. The nightmare scenario of a recession accompanied by Fed hikes is now a very real possibility.”

Crude oil rose by as much as 0.6 per cent to US$80.90 a barrel on Tuesday in New York after jumping by 6.3 per cent for the biggest gain in almost a year for the previous day. The upsurge was spurred by an unexpected decision by the Oil and Petroleum Exporting Countries organisation and its allies to cut daily output by more than 1 million barrels.

Rising crude has complicated the task of the Federal Reserve and the European Central Bank to curb rising prices. The Fed has backed off from aggressive interest-rate increases this year, raising benchmark borrowing costs by 25 basis points in the February and March meetings after inflation showed signs of easing and the collapse of Silicon Valley Bank roiled the financial markets.

An exodus of capital from the city is also weighing on sentiment. The Hong Kong Monetary Authority (HKMA) bought HK$7.1 billion (US$905 million) of the local currency in New York hours on Monday to defend its peg to the US dollar, its third intervention this year.

Other major Asian markets all rose. Japan’s Nikkei 225 climbed 0.3 per cent, while South Korea’s Kospi rose 0.2 per cent and Australia’s S&P/ASX 200 added 0.1 per cent.