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Asian Stocks Lifted by China Data But Inflation Fears Weigh

China shares hit a five-week high as foreign inflows surged ahead of Covid-hit Shanghai’s reopening, but Tokyo stocks eased, with rising US yields worrying investors


Asian shares retreated on Monday with investors distracted by two major data releases that will come from the US this week and China’s persistent Covid problem.
More Covid-19 flare-ups in China and ongoing concerns over a global recession also weighed on confidence. AFP file photo.

 

Asian markets endured mixed fortunes on Tuesday with positive news about China’s manufacturing sector competing with continuing inflation worries for traders’ attention.

The mood was initially lifted by data indicating China’s crucial manufacturing sector was improving, helped by the easing of strict Covid containment measures in major cities including Shanghai.

But, with a top Federal Reserve official pressing for more interest rate hikes to combat surging inflation, investors’ enthusiasm waned and advances were limited.

 

Also on AF: China, US 10-Year Yield Gap Erased – Chart of the Week

 

Hong Kong shares finished on the front foot again, though, building on a recent rally and that data showing improvement in China’s factory activity. The Hang Seng Index rose 1.38%, or 291.27 points, to 21,415.20.

Tokyo stocks eased, however, with rising US yields worrying investors. The benchmark Nikkei 225 index ended down 0.33%, or 89.63 points, at 27,279.80, while the broader Topix index gave up 0.51%, or 9.77 points, to 1,912.67.

Chinese shares closed at five-week highs on Tuesday, led by a rally in stocks of consumer and high-tech firms, as the market witnessed its highest foreign inflows for this year ahead of Shanghai’s imminent reopening and easing of Covid-19 curbs.

The Shanghai Composite Index jumped 1.19%, or 37.37 points, to 3,186.43, while the Shenzhen Composite Index on China’s second exchange added 1.57%, or 31.06 points to 2,006.95. China’s blue-chip CSI300 index rose 1.6% to 4,091.52, its highest closing level since April 19.

The advances came after an official Chinese manufacturing survey showed activity contracted more slowly in May as coronavirus curbs were relaxed, but ongoing controls on movement continue to dim the growth outlook.

“Shanghai’s phased-in reopening may only represent a respite rather than a turning point,” economists at Nomura said in a note. “The real turning point will be marked by a shift in China’s stance on its zero Covid strategy rather than headline caseloads, the easing of some lockdowns or monthly activity data.”

 

US Inflation Running Hot

Indian stocks fell back with Mumbai’s signature Nifty 50 index down 0.46%, or 76.85 points, to close at 16,584.55. Seoul, Singapore, Taipei, Jakarta, Bangkok and Wellington advanced while Sydney and Manila fell.

Globally, markets ignored signs that China’s economic pain may be abating amid easing Covid-19 curbs and focused instead on the inflation outlook, as Brent crude futures dashed above $123 a barrel, a two-month high, and a Fed governor backed further interest rate hikes to tame prices.

With US inflation running more than three times the 2% goal, Fed Governor Christopher Waller on Monday advocated 50 basis-point rate rises until there was a “substantial” reduction in inflation.

Ten-year Treasury yields, shut on Monday for a US holiday, jumped as much as 10 bps before easing to trade 6 bps higher at 2.81%. While still 40 bps below their early-May highs, yields have inched off six-week lows hit recently.

MSCI’s global stock index is set to end May with a small loss, its first monthly fall this year, while a pan-European index slipped 0.4% on Tuesday.

Futures for the US S&P 500 and Nasdaq indexes were down 0.4% and 0.3% respectively.

 

Key figures

Tokyo – Nikkei 225 > DOWN 0.3% at 27,279.80 (close)

Hong Kong – Hang Seng Index > UP 1.4% at 21,415.20 (close)

Shanghai – Composite > UP 1.2% at 3,186.43 (close)

London – FTSE 100 > UP 0.1% at 7,604.24

Brent North Sea crude > UP 1.7% at $123.72 per barrel

West Texas Intermediate > UP 3.4% at $118.97

New York – Dow > Closed for a holiday

 

  • Reuters with additional editing by Sean O’Meara

 

Read more:

China Factory Activity Decline Slows in May, Data Shows

China Tells Provinces to Issue $225bn in Bonds in June

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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