Asian shares experienced modest gains on December 8, 2022, with Hong Kong and mainland Chinese markets leading the advance, though persistent concerns about global economic growth and anticipated Federal Reserve interest rate hikes continued to weigh on investor sentiment. The MSCI index of Asia-Pacific shares excluding Japan rose 0.19%, breaking a two-day decline.
Hong Kong’s Hang Seng Index climbed more than 2%, while China’s stock market inched up 0.12% following Beijing’s announcement of significant measures to loosen its strict zero-COVID policy. The policy shift, widely viewed as the most substantial easing of anti-COVID restrictions since the pandemic began, comes after the government’s approach severely damaged the world’s second-largest economy. Critics have described the Chinese Communist Party’s pandemic management as erratic and opaque, creating uncertainty for businesses and citizens about how lasting these changes will be. The relaxation followed profit-taking on Wednesday after the initial announcement.
Other Asian markets showed less optimism. Australia’s S&P/ASX 200 fell 0.67%, and Japan’s Nikkei dropped to near a one-month low. These declines reflected broader anxiety about the global economic outlook, particularly regarding the pace of U.S. interest rate increases. Traders also analyzed data showing U.S. worker productivity recovered slightly faster than previously estimated in the third quarter, though the trend remained sluggish and labor costs stayed high.
Investor risk appetite 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 noted 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.”
U.S. Treasury yields added to equity market pressure. 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 steadied in early Asian trading 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, as traders weighed China’s COVID policy easing against ongoing concerns about a global economic slowdown that could reduce demand.
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 market participants 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 shows 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.
