Asian Stocks Up, Even as Fears Over China’s Latest COVID-19 Outbreak Emerge
Asia Pacific stocks were mostly up on Tuesday morning. However, investors continue to calculate the risks emanating from China’s latest COVID-19 outbreak and aggressive U.S. Federal Reserve monetary-policy tightening.
Japan’s Nikkei 225 gained 0.45% by 10:34 PM ET (2:34 AM GMT) and South Korea’s KOSPI rose 0.62%.
In Australia, the ASX 200 slid 1.97%, with markets re-opening after a holiday.
Hong Kong’s Hang Seng Index rose 0.93%.
China’s Shanghai Composite was up 0.37% while the Shenzhen Component fell 0.57%. Fears are growing that the capital city of Beijing will be the next to be locked down, with most residents undergoing testing. The Chinese yuan, on the other hand, pared its biggest loss since 2015, after the People’s Bank of China cut the amount of money that banks need to have in reserve for their foreign currency holdings on Monday.
U.S. Treasuries were on an upward trend alongside sovereign notes in Australia and New Zealand.
COVID-19, supply chain disruptions, a Fed monetary tightening that could become more aggressive, and the ongoing war in Ukraine are also increasing the probability of slower economic growth. The highest relative cost of loss-protecting put contracts in two years is indicative of the search for portfolio buffers in the U.S.
“It’s a question of what monetary policy is going to look like and it’s super unknown,” Quadratic Capital Management LLC chief investment officer Nancy Davis told Bloomberg.
The Bank of Japan will hand down its monetary policy decision, with the European Central Bank also publishing its economic bulletin, on Thursday.
Meanwhile, oil remained below the $100 mark, pulled down by growing fuel demand concerns over the Chinese COVID-19 lockdowns. The war in Ukraine, precipitated by Russia’s invasion of Ukraine on Feb. 24, also added to commodity-market volatility.
China’s government is facing pressure to support the economy. Stocks markets are near their lowest level in about two years, after the benchmark CSI 300 Index tumbled almost 5% on Monday.
“For the time being, the specter of more severe restrictions in China is not being traded from the inflationary side, but rather as a detriment to the global recovery and as a demand-negative shock,” BMO Capital Markets strategists Benjamin Jeffery and Ian Lyngen said in a note.
The duo is “less convinced that the situation will be enough to materially shift the Fed’s aggressiveness,” the note added.
In the U.S., shares closed a volatile session higher on Monday, boosted by Tesla Inc. (NASDAQ:TSLA) CEO Elon Musk’s $44 billion deal to buy Twitter Inc . (NYSE:TWTR) and the emergence of dip buyers ahead of earnings reports. Companies including Alphabet Inc. (NASDAQ:GOOGL), Meta Platforms Inc. (NASDAQ:FB), Amazon.com Inc. (NASDAQ:AMZN), and Apple Inc. (NASDAQ:AAPL) will report earnings throughout the week.
On the data front, the Australian consumer price index and U.S. data including the GDP for the first quarter of 2022, are due on Wednesday and Thursday, respectively.