Asian stocks rallied on Tuesday with investors in optimistic mood at the beginning of the New Year with hopes high of a turnaround for a post-Covid China despite a surge in cases in the country.
The upbeat outlook also dominated despite poor December factory data and the threat to China’s healthcare system which has been overwhelmed after Beijing rolled back its economically painful Covid restrictions.
Hong Kong’s stocks started the New Year on the front foot with the Hang Seng Index rising 1.84%, or 363.88 points, to 20,145.29.
The Shanghai Composite Index added 0.88%, or 27.25 points, to 3,116.51, while the Shenzhen Composite Index on China’s second exchange rose 1.44%, or 28.51 points, to 2,004.12.
A batch of surveys had showed China’s factory activity shrank at its sharpest pace in nearly three years as Covid-19 infections swept through production lines.
“China is entering the most dangerous weeks of the pandemic,” warned analysts at Capital Economics.
“The authorities are making almost no efforts now to slow the spread of infections and, with the migration ahead of Lunar New Year getting started, any parts of the country not currently in a major Covid wave will be soon.”
Mobility data suggested that economic activity was depressed nationwide and would likely remain so until the infection wave began to subside, they added.
Indian stocks edged ahead with Mumbai’s signature Nifty 50 index up 0.21%, or 38.80 points, at 18,236.25.
MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.5%, having been down more than 1.0% in choppy early trading.
Liquidity was lacking as Japanese markets were shut for a holiday, making for some choppy moves. Nikkei futures were trading at 25,750 compared with the last close for the cash index of 26,094.
BOJ’s Shock Yield Move
Wall Street was in a guarded mood, with S&P 500 futures and Nasdaq futures up 0.1%. EUROSTOXX 50 futures fell 0.6% and FTSE futures 0.1%.
Data on US payrolls this week are expected to show the labour market remains tight, while EU consumer prices could show some slowdown in inflation as energy prices ease.
“Energy base effects will bring about a sizeable reduction in inflation in the major economies in 2023 but stickiness in core components, much of this stemming from tight labour markets, will prevent an early dovish policy ‘pivot’ by central banks,” analysts at NatWest Markets wrote in a note.
They expect interest rates to top out at 5% in the United States, 2.25% in the EU and 4.5% in Britain and to stay there for the entire year. Markets, on the other hand, are pricing in rate cuts for late 2023, with Fed fund futures implying a range of 4.25 to 4.5% by December.
While markets have for a while priced in an eventual US easing, they were badly wrong-footed by the Bank of Japan’s shock upward shift in its ceiling for bond yields.
The BOJ is now considering raising its inflation forecasts in January to show price growth close to its 2% target in fiscal 2023 and 2024, according to the Nikkei.
Such a move at its next policy meeting on January 17-18 would only add to speculation of an end to its ultra-loose policy, which has essentially acted as a floor for bond yields globally.
In commodity markets, gold made a fresh six-month top of $1,842.99 an ounce.
Worries about the state of global demand saw oil prices lower. Brent lost 41 cents to $85.50 a barrel, while US crude fell 33 cents to $79.3 per barrel.
Tokyo – Nikkei 225 <> CLOSED
Hong Kong – Hang Seng Index > UP 1.84% at 20,145.29 (close)
Shanghai – Composite > UP 0.88% at 3,116.51 (close)
London – FTSE 100 > UP 2.14% at 7,611.04 (0940 GMT)
New York – Dow < DOWN 0.22% at 33,147.25 (Friday close)
- Reuters with additional editing by Sean O’Meara