Inflation, Recession Worries Drag Down Asian Shares; Oil Skids

Asian share markets slipped on Thursday on widespread investor concern over high inflation and the threat of recession, while oil prices slumped following a report of reassurances from Saudi Arabia over production.

In Europe, shares were set to nudge higher at the open after regional indexes notched two days in the red. Euro Stoxx 50 futures were up 0.16% and German DAX futures added less than 0.1%, while FTSE futures were flat.

Global benchmark Brent crude was down about 2% at $114.02 per barrel ahead of a meeting of oil producing countries later in the day, which is expected to pave the way for output increases. [OIL/]

U.S. crude also dipped around 2% to $112.97.

The fall in oil prices gathered pace after the Financial Times reported that Saudi Arabia may be prepared to raise oil production in the event of a sharp drop in Russia's output.

"This will be well received by Western leaders given inflation - and inflation expectations - remain eye wateringly high, and central banks try to raise rates at the risk of tipping their economies into a recession," said Matt Simpson, senior market analyst at City Index in Sydney.

"More supply essentially soothes some of those inflationary fears, even if there is a lot more work to do when it comes to fighting inflation."

Carlos Casanova, senior Asian economist at Union Bancaire Privee in Hong Kong, said that amid reports that China and India are buying oil at a steep discount from Russia, an increase in Saudi production could see oil prices stabilise at around $100-$110 per barrel.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 1.4% in afternoon trade. China's blue-chip index fell 0.1%, Australian shares lost 1%, and Seoul's KOSPI slid 1.1%.

In Tokyo, the Nikkei slipped 0.25%.

Investors' worries over inflation and recession have festered amid uncertainty caused by the U.S. Federal Reserve's pace of interest rate hikes, the impact of the Russia-Ukraine war on food and commodity prices, and supply chain constraints exacerbated by strict COVID-19 curbs in China.

On Wednesday, a survey showing stronger-than-expected U.S. manufacturing activity in May did little to assuage those concerns. Jamie Dimon, chairman and chief executive of JPMorgan Chase & Co, likened the challenges facing the U.S. economy to a "hurricane".

Rodrigo Catril, senior FX strategist at NAB, said details of the survey showed price signals "still consistent with extremely strong inflationary pressures" and negative employment growth in the manufacturing sector.

"The services sector is the big U.S. employer so it will be important to see what the Services ISM reveals on Friday," he said.

A new survey of South Korean factory activity on Thursday showed slowing growth in May as import and export orders shrank, the latest indicator of global manufacturing woes.

While the stronger U.S. manufacturing data did little to lift U.S. shares overnight, it supported the dollar as yields pushed to two-week highs. [FRX/]

In Asian trade, the global dollar index was steady at 102.56, while the yen firmed slightly to 130.04 per dollar as U.S. yields inched lower. The euro edged up 0.05% to $1.0651.

Benchmark U.S. 10-year Treasury notes last yielded 2.9076%, down from a U.S. close of 2.931% on Wednesday, while the two-year yield slipped to 2.6540% from a close of 2.664%.

The lower yields kept gold prices steady after hitting a two-week low on Wednesday. Spot gold was barely higher at $1,846.46 per ounce. [GOL/]

(Editing by Jacqueline Wong and Kim Coghill)