Asian shares edged higher on December 8, 2022, led by gains in Hong Kong and mainland China, even as global growth fears and expectations of further Federal Reserve rate hikes kept markets under pressure. The MSCI index of Asia-Pacific shares outside Japan rose 0.19%, snapping a two-day losing streak. Hong Kong’s Hang Seng Index surged over 2%, while China’s stock market added 0.12%, as investors reacted to Beijing’s announcement of significant measures to loosen its strict zero-COVID policy, which has severely damaged the world’s second-largest economy.
Chinese stocks rise on COVID policy shift
The uptick in Chinese stocks followed profit-taking on Wednesday after the government unveiled its most substantial easing of anti-COVID restrictions since the pandemic began. The move is widely seen as a belated acknowledgment that the policy has crippled economic activity, disrupted supply chains, and suppressed consumer confidence. While the relaxation offers a potential boost, critics note that the Chinese Communist Party’s handling of the pandemic has been erratic and opaque, leaving businesses and citizens uncertain about the durability of the changes.
Mixed performance across Asia-Pacific
Elsewhere in the region, the picture was less optimistic. Australia’s S&P/ASX 200 index fell 0.67%, while Japan’s Nikkei dropped to near a one-month low. These declines reflected broader anxiety about the global economic outlook, particularly the pace of U.S. interest rate increases. Traders also digested data showing U.S. worker productivity recovered slightly faster than previously estimated in the third quarter, but the trend remained sluggish and labor costs stayed high. The mixed signals left markets struggling for direction.
Fed rate hike expectations weigh on sentiment
Investors’ appetite for risk has been curbed by growing fears that the U.S. central bank may extend its aggressive rate-hike cycle. Positive reports on jobs and the services sector have reinforced expectations that the Fed will continue tightening. The Fed is widely anticipated to raise interest rates by 50 basis points next week, following four consecutive 75-basis-point increases. “Range trading may occur a little bit ahead of the FOMC meeting next week,” said Rob Carnell, an analyst at ING. He added that the U.S. Treasury market “appears to be moving with little support” and that this is “driving the majority of the remainder of the market.”
Bond yields and currency moves
U.S. Treasury yields added to the pressure on equities. The 10-year Treasury note yield rose 4.3 basis points to 3.451%, while the 30-year bond yield increased 3.4 basis points to 3.448%. Both had touched three-month lows on Wednesday. The two-year yield, which closely tracks interest rate expectations, climbed 3.9 basis points to 4.296%. In currency markets, the dollar index gained 0.171%. The euro slipped 0.05% to $1.05, and sterling fell 0.12% to $1.2184.
Oil prices stabilize after hitting 2022 lows
Oil prices steadied in early Asian trading on Thursday after falling to their lowest point of the year. U.S. crude rose 0.96% to $72.70 a barrel, while Brent crude gained 0.8% to $77.79. The stabilization came as traders weighed the impact of China’s COVID policy easing against ongoing concerns about a global economic slowdown that could reduce demand.
Central banks signal potential slowdown in tightening
The Bank of Canada hinted on Wednesday that its record-tightening campaign was nearing an end, raising its benchmark overnight rate by 50 basis points to 4.25%, the highest level in 15 years. This move, along with expectations that the Fed, Bank of England, and European Central Bank may begin to moderate their pace of increases when they meet next week, has led many in the market to believe that inflation is slowing and bond yields have peaked. However, the overall mood remains cautious as investors await clearer signals from policymakers.
The divergent performance across Asian markets on Thursday show the tension between hopes for a Chinese economic recovery and persistent fears about a global downturn. While Beijing’s policy pivot offers a potential catalyst, the path ahead remains clouded by uncertainty over the Fed’s next moves and the lasting damage from China’s prolonged lockdowns.
