Asian stocks hit four-month highs as China’s economy reopens
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1% to hit a four-month high in morning trade. Japan’s Nikkei rebounded from a three-month low.
China suddenly eased extremely strict restrictions on travel and activities, unleashing the virus on the country’s 1.4 billion people. Many funeral homes and hospitals say they are overwhelmed, but investors hope that once the waves of infection pass, life and costs will return to normal and see the most immediate challenges behind them.
Joanne Goh, investment strategist at Singapore’s DBS Bank, said, “China’s reopening is having a big impact… .
“There will be setbacks along the way,” Goh said, presenting his outlook to reporters. “We’re giving him 6 months to adjust to the process. But we don’t think it’s reversible.”
China’s central bank also said overnight it would increase financial support to boost domestic consumption and key investment projects and support a stable property market.
E-commerce and consumer stocks were among Hong Kong’s biggest gainers, pushing the Hang Seng up 2% to a six-month high, as hopes for a reopening lifted the Chinese yuan from four-month highs and supported regional stocks and currencies.
The yuan rose about 0.2% to 6.8750 on Thursday.
China partially eased an unofficial ban on coal imports from Australia and the Australian dollar hit a three-week high overnight, just below $0.69. It was last bought at $0.6833.
Oil was given the highest caution rating, falling sharply overnight on concerns that the near-term outlook in China was uncertain and a global slowdown would weigh on demand. [O/R]
Brent crude futures settled at $78.42 a barrel on Thursday after falling 1.5% on Wednesday.
BENEFIT FROM CHANGE
Optimism rose in Asia as minutes of the Federal Reserve’s December meeting released on Wednesday warned against a year-end interest rate cut expected by traders.
Fed committee members noted that “unnecessary easing of financial conditions” would complicate efforts to restore price stability.
“Translating the Fed’s language, this is a warning to markets that being overly optimistic can ironically backfire,” said Vishnu Varathan, head of economics at Mizuho Bank Singapore.
“That is, to the extent that premature bets on rate cuts cause financial conditions to loosen, the Fed may have to tighten conditions further to compensate.”
Federal funds futures indicate that traders expect US interest rates to peak just below 5% in May or June before tapering slightly in the second half of 2023.
Wall Street indexes were flat on Wednesday before closing with modest gains, but futures in Asian FX and S&P 500 futures struggled, ending around 0.4% lower. [.N]
Treasuries held on to recent gains, with the 10-year yield down dozens of basis points this week at 3.7070%. When prices rise, productivity falls.
In the currency market, the dollar weakened as investors vacillated between the Fed’s hawkish tone and support for riskier currencies fueled by China’s reopening.
The yen recovered overnight losses and rose about 0.5% to 131.87 per dollar, as traders believe this year will – finally – be a year of political tightening in Japan.
While the unseasonably warm weather in Europe hurt skiers, it was a boon for the euro, which benefited from lower gas prices. Benchmark Dutch gas prices fell to a 14-month low overnight, while the euro rose to $1.0619. [FRX/]
