Asian stocks weigh China risks, and the yen hit a 6-month high

  • Asian markets recovered early losses, and US stock futures were flat
  • The dollar broke below the 130 yen support level to reach a 6-month low
  • Global growth fears are weighing on oil prices, but gold is rallying

SYDNEY (Reuters) – Asian stocks recovered from early losses on Tuesday as investors weighed the near-term costs of coronavirus infection in China against the long-term benefits of reopening the world’s second-largest economy.

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) It rose 0.5%, after falling more than 1.0% in volatile early trade.

Liquidity was lacking as Japanese markets closed for a holiday, which led to some choppy moves. Nikkei futures were trading at 25,750 compared to the last close of the monetary index (.N225) from 26,094.

Investors were encouraged by the Hang Seng rebounding 1.3%. (.HSI)which was down more than 2% at one point, while the leading Chinese stocks (.CSI300) It rose 0.2%.

And a raft of surveys showed that Chinese factory activity contracted at the sharpest pace in nearly three years, as COVID-19 infections swept production lines.

“China is entering the most dangerous weeks of the epidemic,” warned analysts at Capital Economics.

“The authorities are making almost no efforts now to slow the spread of infection, and with migration starting ahead of the Lunar New Year, any parts of the country that are not currently in a major COVID wave will soon be.”

They added that the mobility data indicates a decline in economic activity nationwide and is likely to remain so until the wave of infections begins to subside.

Wall Street was on the alert, with S&P 500 and Nasdaq futures up 0.1%. EUROSTOXX 50 futures were down 0.6%, and FTSE futures were down 0.1%.

Data on US payrolls this week is expected to show that the labor market remains tight, while consumer prices in the European Union may show some slowdown in inflation as energy prices fall.

“Energy base effects will significantly reduce inflation in major economies in 2023, but stability in the underlying components, much of this stemming from tight labor markets, will prevent early pessimism by central banks,” analysts at NatWest Markets wrote in a note. .

They expect interest rates to reach 5% in the US, 2.25% in the EU and 4.5% in Britain and to stay there throughout the year. On the other hand, markets are pricing in rate cuts in late 2023, with Fed Fund futures pointing to a range of 4.25 to 4.5% by December.

The minutes of the Federal Reserve’s December meeting due this week will probably show that many members saw risks that interest rates may need to rise for a while longer, but investors will be aware of any talk of a pause, given how high rates have already been.

While the markets did price in the final US easing for a while, they were sorely wrong by the Bank of Japan’s sudden upward shift in its yield ceiling.

The Bank of Japan is now considering raising 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 will only add to speculation of an end to a very loose policy, which has essentially served as a floor for bond yields globally.

Japan’s 10-year bond yields held near the new 0.5% cap, but only because the Bank of Japan intervened last week with unlimited buying.

The policy shift boosted the yen across the board, with the dollar losing 5% in December and the euro 2.3%.

The trend continued on Tuesday as the dollar fell 0.9% to a six-month low of 129.52 yen, after breaking through key chart support at 130.40. The euro fell to a three-month low of 138.26 yen.

The euro settled against the dollar at $1.0679, after encountering resistance around $1.0715, while the dollar index settled at 103.480.

In commodities markets, gold made a new six-month high of $1,842.99 an ounce.

Concerns about the state of global demand drove down oil prices. Brent lost 41 cents to $85.50 a barrel, while US crude fell 33 cents to $79.3 a barrel.

Reporting from Wayne Cole. Editing by Bradley Perrett and Sam Holmes

Our standards: Thomson Reuters Trust Principles.

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