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Asia Shares Mixed on Fed Fears, China Covid Curbs Easing

Strong US economic data sparked worries the Fed might stick to its aggressive rate hikes policy for longer while Beijing’s pandemic rules rollback raised optimism


Asia stock markets
Investors were focused on Wall Street, the Lunar New Year holiday closing markets in China and Hong Kong.

 

Asia’s major stock markets returned a mixed bag of results on Tuesday with Fed rate hike fears and China’s recoil of Covid curbs both having an impact on investor mood.

Some indexes saw their sharpest declines in two weeks following strong US data that again suggested the Federal Reserve might stick longer with its aggressive interest rate increases.

And while investors were hopeful that China’s economy might start improving with the easing of the country’s zero-Covid policy, analysts said the markets had already priced in a lot of the upbeat news.

 

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Japanese shares inched higher, though, underpinned by gains in its chip-related stocks and as exporters advanced after the yen weakened against the dollar overnight.

The benchmark Nikkei 225 index rose 0.24%, or 65.47 points to end at 27,885.87. The broader Topix index was up 0.12%, or 2.32 points, to 1,950.22.

The dollar gained against the yen overnight, after data showed that US services industry activity unexpectedly picked up in November, prompting speculation the Fed may lift interest rates more than recently projected.

“As the yen weakened, some shares looked attractive,” said Chihiro Ohta, assistant general manager at the investment research and investor services at SMBC Nikko Securities.

While Chinese stocks have rallied in recent weeks, they are among the worst performers in Asia so far this year, despite the country now beginning to ease back some of its lockdown restrictions.

 

China Covid Curbs Protests

On Tuesday, Beijing dropped the need for people to show negative Covid tests to enter supermarkets and offices, the latest in an easing of curbs across the country following last month’s historic protests.

The Hang Seng Index dropped 0.40%, or 77.11 points, to 19,441.18.

But the Shanghai Composite Index gained 0.02%, or 0.72 points, to 3,212.53, while the Shenzhen Composite Index on China’s second exchange edged up 0.26%, or 5.30 points, to 2,067.93.

Elsewhere across the region, stocks in Korea fell 1% while Taiwan equities slumped by 1.6%.

Indian stocks slipped with Mumbai’s signature Nifty 50 index down 0.31%, or 58.30 points, to close at 18,642.75.

MSCI’s broadest index of Asia-Pacific shares outside Japan declined 1.4%, the biggest fall since November 21, after climbing to a three-month high in the previous session. The benchmark has gained 20% from October lows on persistent chatter about China easing pandemic measures.

 

US Dollar Firms on Rivals

Tuesday’s declines in Asian equities came after global stocks and Treasury prices fell on Monday as new evidence of a strong US economy raised expectations that interest rates would stay higher for longer.

US services industry activity unexpectedly picked up in November and employment rebounded. It was the latest data showing economic momentum that could push the Federal Reserve to tighten policy further, and it followed a robust US payrolls report for November.

Futures show the market expects US short-term interest rates to peak at 5.001% in May. The expectation is about 9 basis points higher than it was last week. By December 2023, the rates will have declined to 4.574%, according to futures markets.

The dollar stayed firm versus major peers, following its biggest rally in two weeks on Monday, which was helped by the strong US services data.

The Australian dollar regained some ground after the country’s central bank raised interest rates to decade highs and stuck with a prediction of further hikes ahead, quashing any thought it was near to pausing.

Oil prices edged up, after a G7 price cap on Russian seaborne oil came into force on Monday on top of a European Union embargo on imports of Russian crude by sea.

Brent crude futures ticked up 0.5% to $83.1 a barrel. Futures fell more than 3% in the previous session after the US economic data.

 

Key figures

Tokyo – Nikkei 225 > UP 0.24% at 27,885.87 (close)

Hong Kong – Hang Seng Index < DOWN 0.40% at 19,441.18 (close)

Shanghai – Composite > UP 0.02% at 3,212.53 (close)

London – FTSE 100 < DOWN 0.17% at 7,554.81 (0935 GMT)

New York – Dow < DOWN 1.40% at 33,947.10 (Monday close)

 

  • Reuters with additional editing by Sean O’Meara

 

Read more:

Beijing Ready For ‘Life Again’ as Lockdowns Lift Across China

Asia Braces for Wall St Shockwave as Banks’ Fears Deepen

 

 

Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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