December 5, 2022: Asian stocks rose and the dollar weakened further as traders welcomed more easing of strict Covid containment measures in China that have hammered the world’s number-two economy.
The moves helped offset a forecast-busting US jobs report that dented hopes that the Federal Reserve will take a softer approach to hiking interest rates in its battle against inflation.
Investor sentiment has picked up considerably in recent weeks on indications the US central bank will slow down its monetary tightening as price rises appear to be slowing and the economy weakens.
That has come as Chinese leaders take a more pragmatic approach to fighting Covid after recent protests across the country that also called for more political freedoms.
The harsh zero-Covid strategy — which saw major cities including Beijing and Shanghai face lockdowns for months — has been blamed for a sharp slowdown in economic growth this year and sent shudders through markets.
The move to reopening helped fuel “market optimism about the tailwinds of a likely acceleration in growth in 2023 for China-sensitive assets”, said SPI Asset Management’s Stephen Innes.
“Although there have been several local changes to Covid policies, China has yet to shift away from the zero-Covid policy officially. Instead, they are trying to balance the expected reopening surge in Omicron cases against minimising economic and social costs.”
The brighter outlook lifted Asian markets with Hong Kong leading the way, jumping more than three percent while Shanghai put on more than one percent.
There were also gains in Tokyo, Sydney, Seoul, Singapore, Taipei, and Manila.
The prospect of the world’s number-two economy kicking back into gear helped traders overcome data on Friday showing far more jobs than expected were created in the United States in November.
A big jump in wages added to concerns that the economy remained hot, meaning the Fed still had plenty of work to do to get inflation down to its two percent target.
“If next week’s consumer price index data stays hot… then our forecast for the Fed funds rate to be raised by 50 basis points each in December and February to hit 4.75-5.00 percent may prove too low,” said Mansoor Mohi-uddin, of Bank of Singapore.
“If the Fed instead needs to keep hiking well into 2023 then the near-term outlook for risk assets will remain challenging for investors.”
Still, the dollar remained under pressure against its main peers as investors lower their expectations for US borrowing costs.
The reopening of China also lifted oil prices as demand expectations improve, while a decision by OPEC and top producers to not lift output also boosted the commodity.
– Key figures around 0230 GMT –
Tokyo – Nikkei 225: UP 0.1 percent at 27,808.74 (break)
Hong Kong – Hang Seng Index: UP 3.6 percent at 19,349.17
Shanghai – Composite: UP 1.1 percent at 3,189.66
Euro/dollar: UP at $1.0564 from $1.0531 on Friday
Dollar/yen: DOWN at 134.25 yen from 134.27 yen
Pound/dollar: UP at $1.2324 from $1.2296
Euro/pound: UP at 85.75 pence from 85.73 pence
West Texas Intermediate: UP 2.0 percent at $81.55 per barrel
Brent North Sea crude: UP 2.0 percent at $87.31 per barrel
New York – Dow: UP 0.1 percent at 34,429.88 (close)
London – FTSE 100: FLAT at 7,556.23 (close)