While concerns about a downturn and the prospect of Fed interest rate increases persist, Asian shares increased on Thursday, supported by Hong Kong and China stocks and growing confidence about the loosening of COVID restrictions in the world’s second-largest economy.
On course to end a two-day losing streak, MSCI’s broadest index of Asia-Pacific equities outside of Japan was up 0.57%.
After a pro-China tabloid reported that Hong Kong’s government is considering loosening its COVID-19 rules even more, the Hang Seng Index in Hong Kong increased by almost 3%, helping to boost China’s stock market by 0.14%.
The most recent data follows the government’s announcement of significant revisions on Wednesday to soften a strict anti-COVID policy that has severely harmed China’s economy.
Chinese equities may be the bright spot in 2023, according to Wenli Zheng, portfolio manager of the China Evolution Equity Strategy at T. Rowe Price. “While it could be a difficult path over the next few weeks, China is ready to move on from COVID in one to two quarters,” Zheng said.
Gains in Asia were restrained by growing concerns that the Federal Reserve would stick to a longer cycle of rate increases after positive news on the jobs and services sectors reduced risk appetite among investors.
The S&P/ASX 200 index in Australia dropped 0.67%, and the Nikkei in Japan plunged to close to a one-month low. E-mini futures for the S&P 500 decreased by 0.13%, while those for the Eurostoxx 50, German DAX, and FTSE also decreased.
U.S. Treasury yields were also a drag, with five-year notes and 30-year bonds trading at three-month lows.
According to Rob Carnell, head of ING’s Asia-Pacific research, “the thing that stands out is what’s occurring on the U.S. Treasury market; there does not seem to be a lot behind the changes, and I think that’s what’s driving most of the rest of the market.”
Following four straight 75-basis-point rate increases, the U.S. central bank is largely anticipated to increase interest rates by 50 basis points the following week.
The benchmark overnight interest rate was increased by 50 basis points to 4.25% on Wednesday, the highest level in nearly 15 years, giving the Bank of Canada a hint that its historic tightening campaign was about to come to an end.
Data released on Wednesday revealed that while U.S. worker productivity increased in the third quarter at a somewhat higher rate than anticipated, the trend remained unfavourable, keeping labour prices high.
In comparison to the 30-year Treasury bond, the yield on 10-year Treasury notes increased by 3.6 basis points to 3.450%.
The two-year U.S. Treasury yield increased by 3.9 basis points to 4.295%, which is normally in line with expectations for interest rates.
The likelihood of a recession in the country caused the U.S. dollar to tremble on the currency market. Sterling recently traded at $1.2178, down 0.17% on the day, while the euro was down 0.1% to $1.0495.
After dropping to their lowest point of the year on Wednesday, oil prices climbed on Thursday. Recently, U.S. crude increased by 0.9% to $72.66 per barrel, while Brent increased by 0.8% to $77.79.
