Thursday saw a modest decline in Asian markets as rising COVID cases in China unnerved investors and raised questions about the likelihood of a quick rebound for the second-largest economy in the world following the easing of strict COVID rules.
The worst month of the year, December, was expected to end in the red for MSCI’s largest index of Asia-Pacific shares outside of Japan, concluding a terrible 2022.
The Eurostoxx 50 futures were down 0.24%, the German DAX futures were down 0.30%, and the FTSE futures were down 0.36%, all of which suggested that the gloomy mood in Europe was set to persist.
Related: Asian stocks went down because investors were worried about China reopening.
Since Beijing began to dismantle its “zero-COVID” policy at the beginning of the month, the country’s healthcare sector has been under a lot of strain.
While numerous nations, like the United States and Japan, have made COVID testing required for travellers from China, China stated on Monday that it would stop quarantine procedures for incoming travellers on January 8.
On two flights from China to Milan’s main airport, Malpensa, about half the passengers tested positive for COVID on Wednesday.
In a report, analysts at Nomura warned that during the nationwide travel frenzy for the Lunar New Year, which occurs on Jan. 22, there might be substantial waves of infection throughout China, extending from urban to rural areas.
Nomura analysts noted that the prior “zero-COVID” policy may have overprotected individuals, increasing the likelihood of an outbreak if the limitations were relaxed. “China may find itself in a tough situation due to its procrastination on embracing a “living with COVID” approach,” they added.
Hong Kong’s stock market fell 1%, while shares in China dipped 0.3%. The resource-heavy S&P/ASX 200 index in Australia dropped 0.94%, while the Nikkei in Japan dropped more than 1% to a nearly three-month low.
Markets have remained muted due to worries that measures by central banks to manage inflation could cause an economic downturn and the uncertainty around how China’s economy will perform if COVID regulations are lifted.
The Investor Confidence Index of State Street (NYSE:STT), which examines the buying and selling habits of institutional investors, dropped to 75.9 in December, the lowest level since the pandemic’s start three years earlier.
The fall in risk appetite among investors this month was most pronounced in North America due to mounting recessionary concerns, according to Marvin Loh, senior macro strategist at State Street Global Markets.
Investors were also watching the weekly U.S. unemployment claims figures that were scheduled to be released later on Thursday.
When the U.S. Federal Reserve conducts a policy review in February, the markets are now pricing in a 69% likelihood of a rate increase of 25 basis points, and they anticipate that U.S. rates will peak at 4.94% in the first half of 2019.
The Federal Reserve increased interest rates by 50 basis points earlier in December after four consecutive 75-basis-point increases earlier in the year, but it has hinted that higher rates may need to be maintained for longer.
Most people expect a mild recession in the second half of 2023 because of the delayed effect of strong central bank tightening, according to strategists at PineBridge Investments.
They stressed, “We can’t rule out the chance that the increase in corporate profits caused by inflation unwinds sooner, bringing ahead job losses and the recession.”
A six-week high of 3.89% was not far away as the yield on 10-year Treasury notes decreased by 2.2 basis points to 3.864%.
The 30-year Treasury bond yield decreased by 2.2 basis points to 3.955%, while the two-year Treasury bond yield increased by 0.9 basis points to 4.368%, often moving in lockstep with predictions for interest rates.
Related: Asian stocks go down because people think the Fed will have to keep being tough.
While Brent was trading at $83.14, down 0.14% on the day, U.S. crude slipped 0.24% to $78.77 per barrel. [O/R]
At 133.65 per dollar, the Japanese yen gained 0.62% against the US dollar in the currency market. Meanwhile, the British pound was last trading at $1.2037, up 0.20% on the day.
The euro increased by 0.14% to $1.0623, while the dollar index, which compares the value of the dollar to six major currencies, decreased by 0.038%.
