Business

HONG KONG — Equities fell on Tuesday, along with oil, on fears that central bank moves to fight inflation will spark a recession, while the euro fell towards parity with the dollar as cost-of-living crises loom over the eurozone economy.

Worries about a COVID flare-up in China — fuelling fears of more lockdowns — added to the downbeat mood, just as investors prepare for a week of data and earnings that could have huge implications for markets.

Wall Street ended with more losses, with tech firms taking the brunt of the selling on expectations for an extended period of hefty interest rate hikes — the sector is particularly susceptible to higher borrowing costs.

A forecast-beating US jobs report last week suggested the world's top economy was coping with higher Federal Reserve (Fed) rates, but it also gave the bank more room to continue lifting — leading to concerns it could go too far and cause a contraction.

"While the jobs report on Friday highlighted that the US is faring better than the rest in the race to avoid a recession, the rest of the world is sinking under the weight of a cost-of-living crisis and higher interest rates," said OANDA's Craig Erlam.

He added that a recent bounce in stocks had faded "and we now head into earnings season and another week of major economic reports fearful of what may lie ahead".

Tokyo, Shanghai, Hong Kong, Seoul, Singapore, Wellington, Mumbai and Taipei all fell, though Sydney and Jakarta edged up.

London, Paris and Frankfurt were also down at the open.

Bets on a drop in demand caused by a possible recession also hit the crude market, with both main contracts extending Monday's losses.

Euro nears dollar parity 

The Fed's sharp rate hikes have sent the dollar soaring, with the euro particularly under pressure as the European Central Bank moves more slowly in tightening monetary policy and the region faces an energy crisis caused by the Ukraine war.

Sanctions on oil imports from Russia and Moscow's warnings that it will shut off gas to Europe have led analysts to predict the eurozone will fall into recession, and pushed the euro to a 20-year low and close to parity with the greenback.

But commentators said that even if the European Central Bank lifted rates more quickly, that would add to the economic pain.

While the single currency picked up slightly after hitting a low of $1.0003, there is a broad expectation that it is a matter of time before the $1.0000 level is breached. 

There is a fear that a planned 10-day shutdown of Russia's key Nord Stream 1 gas pipeline for maintenance could be extended by Moscow in retaliation for European sanctions linked to its invasion of Ukraine.

French Economy and Finance Minister Bruno Le Maire warned over the weekend that there is a strong chance Moscow will turn off the taps in the winter.

"The next few weeks could be challenging for Europe, with possibly maximum uncertainty stretching into August," said SPI Asset Management's Stephen Innes.

"Investors increasingly believe that gas may not start to flow through Nord Stream 1 again following the scheduled maintenance on July 11-21, with further 'temporary' interruptions seen as likely."

Investors are also awaiting the upcoming corporate reporting season with the dollar in mind.

The currency's strength will not only "affect this quarter's earnings, but more likely it's going to affect the revenue generation outlook for the next couple of quarters and that, I think, is a big problem", Kimberly Forrest, of Bokeh Capital Partners, told Bloomberg Radio.

Markets strategist Louis Navellier added: "Earnings will be very revealing, the outlook for the second half [of the year] more so, as far as the state of consumer demand and the impact of inflationary pressures on profit margins and revenue growth."

"There is already early downward pressure with 71 S&P companies having already issued negative guidance versus outlook given in the first quarter earnings," the highest since the final three months of 2019.

SAN FRANCISCO — Courted and then jilted by the world's richest person, Twitter looks well positioned to win a court battle with Elon Musk over a $1 billion breakup fee and more — but the company will not emerge unscathed.

The entire saga has left observers baffled by what Wedbush analyst Dan Ives described as "one of the craziest business stories ever".

"I think it starts off as a circus show and it's ending as a circus show," said Ives. 

Musk, the founder of electric car company Tesla, sent a letter to Twitter on Friday saying he was pulling out of the controversial deal he made in April to buy the platform for $54.20 per share, or $44 billion in total. 

But such merger agreements are "designed to prevent buyers from getting cold feet and deciding they want to walk away", explains Ann Lipton, a professor of law at Tulane University who specialises in corporate litigation.

Musk, who also heads SpaceX, has accused the social media giant of "false and misleading representations" about the number of fake accounts on its platform.

His lawyers also point to recent Twitter employee lay-offs and hiring freezes, which they say are contrary to the company's obligation to continue operating normally. 

Those arguments may be valid, but they do not merit pulling out of the deal, says Lipton, dismissing them as "nitpicky".

"It's not enough, unless he can show that the representations [about fake accounts] are not just false, but also that they dramatically call the fundamentals of the deal into question," she explains. 

"Looks very much like Musk is legally wrong."

That leaves the possibility that the multi-billionaire is actually trying to renegotiate the price down. 

This tactic has been used successfully elsewhere, such as by LVMH: Two years ago, the global luxury giant broke off a deal to acquire Tiffany before getting a discount. 

But experts do not see how Musk and Twitter could agree on a different price at this point, given that the platform's stock has lost more than a quarter of its value since late April. 

"Both have a lot to lose," Lipton points out. 

If Twitter wins in court, the mercurial entrepreneur will, at a minimum, have to pay a few billion dollars in damages. 

At worst, he could be forced to honour his commitment and buy Twitter at a price that has become exorbitant, while his fortune has melted down by tens of billions of dollars in recent months.

But though this would be a victory for shareholders, it would still leave Twitter in Musk's hands — and his libertarian vision of absolute free speech is not aligned with that of many of the employees, users and advertisers on whom the platform's business model depends.

"Twitter is worse off than six months ago, but in the long run, it's better off without him," says Creative Strategies analyst Carolina Milanesi. 

"It feels like a toy that a spoiled kid wants, but doesn't really know what to do with, so he would get bored of it, and not give it the attention it deserves, and forget it in a corner... Twitter would die off slowly and painfully," she predicts.

'Battle on all fronts' 

Any court proceedings are expected to last for months, especially since Musk "will drag it out," according to Lipton. 

"Twitter is in a strong position," she says.

But Musk, followed by more than 100 million people on the platform, "will try to embarrass them — it will be distracting and demoralising for employees", she argues.

He has already harassed the platform with highly critical tweets, mockery and outlandish suggestions, encouraged by his many fans. 

For Twitter, "it's going be a battle on all fronts — keeping employees, competitors going after their business, brand issues, investors believing the numbers," says Ives, the Wedbush analyst. 

Unlike its Silicon Valley neighbours, Twitter has never been a money-making machine, able to turn users' attention into astronomical advertising revenues. 

"The past few months have been a huge distraction for Twitter, keeping it from focusing on its business fundamentals," notes Debra Williamson of eMarketer. 

"If Musk is able to terminate the deal, Twitter will still be left with the same problems it had before he came on the scene," she says.

"Its user growth is slowing. And while ad revenue is still growing marginally, Twitter is now dealing with a slowing economy that could squeeze ad spending on all social platforms."

SEOUL — Samsung Electronics expects its operating profit in the second quarter to rise 11.4 per cent, the South Korean tech company said in a statement on Thursday.

The company’s announcement comes despite ongoing global supply chain woes. 

The world's biggest smartphone maker forecast 2022 second-quarter operating profit of about 14 trillion won ($10.7 billion), up from 12.6 trillion won in the same quarter last year.

Samsung expected sales in the April-June period to have increased by 21 per cent on-year to 77 trillion won. The figure would represent a downgrade from its first-quarter sales of 77.8 trillion won. 

Analysts said Samsung was helped by its continued strong performances in the memory chip business, making up for declines in smartphone sales over the period. 

"Samsung's smartphone shipments for the second quarter are expected to be just over 60 million units, which is worse than expected," said Park Sung-soon, an analyst at Cape Investment & Securities. 

Samsung shipped 74.5 million smartphones in the first quarter, according to global research firm Counterpoint, topping the global shipments market with 23 per cent, trailed by Apple's 18 per cent. 

With memory chips now used in a wide-ranging array of devices and cloud servers — essential for remote working in the pandemic era — the sector has become less dependent on seasonally driven demand for gadgets such as smartphones and laptops. 

But concerns are growing over uncertainty in the global economic outlook due to Russia's ongoing war in Ukraine and mounting fears of recession driven by inflationary pressure. 

Under such circumstances, it will be "hard for consumer demand for IT gadgets to improve in the coming months", analyst Park said. 

Samsung Electronics is the flagship subsidiary of the giant Samsung group, by far the largest of the family-controlled empires known as chaebols that dominate business in South Korea.

The conglomerate's overall turnover is equivalent to about one-fifth of South Korea's gross domestic product.

The world's biggest memory chip maker, Samsung Electronics has aggressively stepped up investment in its semiconductor business as the world battles chip shortages that have hit everything from cars and home appliances to smartphones and gaming consoles.

Last week, the company became the first chipmaker in the world to mass-produce advanced 3-nanometre microchips as it sought to match and eventually outpace Taiwan's TSMC in the race to manufacture the most advanced microchips. 

The new chips will be smaller, more powerful and efficient, and will be used in high-performance computing applications before being put into gadgets such as mobile phones.

The news came after its May announcement of a 450 trillion won investment over the next five years to "bring forward the mass production of chips based on the 3-nanometer process". 

The vast majority of the world's most advanced microchips are made by just two companies — Samsung and TSMC — both of which are running at full capacity to alleviate a global shortage.

Samsung is the market leader in memory chips, but it has been scrambling to catch up with TSMC in the advanced foundry business.

The supply of memory chips has garnered global geopolitical significance, with leading governments scrambling to secure advanced chip supplies. 

That was demonstrated in May when US President Joe Biden kicked off a South Korea tour by visiting Samsung's sprawling Pyeongtaek chip plant. 

Russia's invasion of Ukraine has "further spotlighted the need to secure our critical supply chains", Biden said at the plant, underscoring the importance of bolstering technology partnerships among "value-sharing" countries. 

LONDON — Recession worries pushed the price of Brent oil briefly back under $100 on Wednesday and the euro moved closer to parity with the dollar.

European stocks rebounded, thanks to lower bond yields and bargain hunting, while US stocks dipped ahead of the release of the minutes of the latest US Federal Reserve (Fed) meeting.

Europe's benchmark crude oil contract, Brent North Sea, fell briefly under $100 per barrel in afternoon deals, following its US counterpart WTI which slumped below the symbolic level on Tuesday when prices plunged by nearly 10 per cent on concerns that a slowing global economy will dent demand for petroleum products.

Citi analysts have forecast that Brent could strike $65 later this year in the event of a prolonged worldwide economic downturn.

Meanwhile, the euro hit a fresh 20-year low point under $1.02 — the European single currency fast closing in on parity as traders eye recession for the eurozone and the ECB's slower moves to raise interest rates than the US Fed.

"A dip in government bond yields has paved the way for bargain hunters to swoop in and snap up European equities," said market analyst David Madden at Equiti Capital.

Investors worried rising bond yields would crimp the ability of eurozone governments to support their economies. 

Paris stocks rose 2 per cent while Frankfurt climbed 1.6 per cent.

Nevertheless, "the mood remains febrile", said Chris Beauchamp, chief market analyst at online trading platform IG.

"The drop in the euro and weakness in yields shows that investors remain very nervous about the economic prospects of the global economy, and the opportunistic bargain hunting in stocks may not have much staying power," he warned.

London's benchmark FTSE 100 index managed to gain 1.2 per cent despite the political turmoil after UK Prime Minister Boris Johnson was rocked by the resignation of finance minister Rishi Sunak.

Johnson vowed to stay in office and quickly appointed new ministers.

"Political risks do not seem to be having a major impact on UK assets," noted Markets.com analyst Neil Wilson.

"There are far too many bigger things on our minds right now — inflation, the economy slowing down, strikes."

Britain is in the midst of nationwide strikes — affecting in particular the transport sector — as wages are eroded by the rocketing inflation.

The pound dipped below $1.18, however.

Elsewhere, Asian equity markets closed mostly lower amid a fresh flare-up of coronavirus cases in parts of China that has seen some cities locked down as part of officials' zero-COVID policy.

Wall Street stocks were lower in late morning trading as investors awaited key economic releases and the release of the minutes of the Fed's last policy meeting.

Investors will be scrutinising the document for any signs that falling commodity prices might lead the Fed to be less aggressive with raising interest rates, which would lower the risk of pushing the US economy into recession. 

DOHA — Shell joined Qatar Energy's $29 billion project to expand production at the world's biggest natural gas field on Tuesday, becoming the fifth and final international partner.

The British-based company took a 6.25 per cent stake for an undisclosed sum, joining TotalEnergies, Eni, ConocoPhillips and ExxonMobil in the North Field East project.

The North Field expansion is the biggest liquefied natural gas (LNG) project ever seen, Qatar Energy said. It comes at a time of intense geopolitical tensions over energy supplies.

The $28.75 billion development is predicted to increase Qatar's production from the current 77 million tonnes a year to 110 million tonnes by 2027.

"As one of the largest players in the LNG business, [Shell] have a lot to bring to help meet global energy demand and security," said Qatar's Energy Minister Saad Sherida Al Kaabi, who is also the Qatar Energy president and CEO.

Qatar Energy estimates that the North Field, which extends under the Gulf sea into Iranian territory, holds about 10 per cent of the world's known gas reserves.

The project's LNG — the cooled form of gas that makes it easier to transport — is expected to come on line in 2026.

The project has taken on growing international importance after Europe's energy supplies took a hit following Russia's invasion of Ukraine.

South Korea, Japan and China have been the main markets for Qatar's LNG.

But since an energy crisis hit Europe last year, the Gulf state has helped Britain with extra supplies, and also announced a cooperation deal with Germany.

Europe has in the past rejected the long-term deals that Qatar seeks for its energy, but the Ukraine war has forced a change in attitude.

Qatar's gas is among the cheapest to produce and has fuelled an economic miracle in the tiny archipelago, which boasts the world's highest GDP per capita.

Qatar is also expected to announce details of another expansion, the North Field South, in coming months.

LONDON — The euro on Tuesday slumped to its lowest level since 2002 and European stock markets sank as growing recession risks sent shockwaves around the region.

The shared currency fell as low as $1.0298, threatening a push towards dollar parity.

It also dived as investors eyed aggressive interest rate hikes by the US Federal Reserve (Fed) in its fight against inflation, in contrast with the European Central Bank which plans more modest increases.

Stocks indices in Frankfurt, London and Paris shed more than 1 per cent in late morning deals on heightened fears of a prolonged economic downturn across Europe.

Economic growth in the eurozone floundered in June, a key survey showed on Tuesday, hit by soaring consumer prices.

S&P Global's closely-watched monthly purchasing managers' index (PMI), which measures corporate confidence, fell to 52 in June from 54.8 in May.

Nevertheless, the reading, which was a 16-month low, remains above the 50-point level signalling expansion.

"Growing fears of a recession are hammering the euro lower, whilst the dollar is soaring on bets that the Fed will keep hiking rates aggressively to tame inflation," City Index analyst Fiona Cincotta said.

"Today's PMI data from Europe have highlighted the risk of slowing growth at the end of the second quarter and raise the prospect of a contraction in activity in the coming months."

By contrast, most Asian stock markets closed higher on growing speculation that US President Joe Biden is about to roll back some of the Trump-era tariffs on Chinese goods.

The mood on trading floors has nevertheless become increasingly gloomy in recent months as observers warn that sharp interest rate hikes aimed at curbing price rises could cause a contraction, compounding uncertainty caused by Russia's war in Ukraine.

Oil prices were mixed as traders assessed the market with demand outstripping supplies.

Investors were keeping tabs also on fresh COVID outbreaks in China that have triggered City lockdowns.