Singapore, May 31 (BNA): Asian stocks reversed earlier losses on Tuesday as indications that China’s economic pain may ease gradually amid the easing of COVID-19 restrictions overshadowed broader investor concerns about the global inflation shock.
Also lifting sentiment in the region were details of Beijing’s new political support, which includes cash aid for graduate employment and support for offshore listings of Internet companies, Reuters reported.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.7%, offsetting losses earlier in the session and led by gains in China and Hong Kong.
But outside of China, things have been mixed amid persistent concerns about global inflation. Japan’s Nikkei was flat. S&P 500 futures are up 0.2%, FTSE futures are unchanged, and Euro STOXX 50 futures are down 0.2%.
“This expansion of inflationary pressures that really relates to food and energy is not just a European story, it is going to be a global story,” said Rodrigo Cattrell, senior currency strategist at National Australia Bank in Sydney.
Meanwhile, US Treasuries slipped on the return from Monday’s US holiday, sending the 10-year bond yield up about 10 basis points to 2.8404%.
German bond yields also rose after the country’s consumer prices rose at their fastest pace in half a century.
Eurozone inflation data is due later on Tuesday, with risks to the upside and nerves growing as oil prices soar to two-month highs thanks to Europe’s pledge to cut Russian oil imports.
Hawkish comments from US Federal Reserve Governor Christopher Waller also dwindled hope that the Fed might pause for breath after increases in June and July.
“I am for a 50 (bps increase) on the table for every meeting until we see deep reductions in inflation. Until we get that, I don’t see the point of stopping,” Waller said.
Fed fund futures are down sharply in Asia, as investors brace for relentless rate hikes that will push the benchmark rate around 3% by mid-2023.
The dollar rose and eventually rose by about 0.3% at 1.0751 dollars per euro, buying 123.93 yen, which is also a gain of about 0.3%.
The trade-sensitive New Zealand dollar fell from a three-week high, while the Australian dollar found support and settled at $0.7195 on the back of positive domestic data and an apparent easing in China’s slowdown.
Helping sentiment slightly, China’s official PMI for May showed factory activity continued to decline but at a slower pace than in April.
That, combined with signs of support from the authorities and an easing of the lockdown in Shanghai, was enough for a cautious optimism to return to financial markets.
China’s Shanghai Composite is up 1%, while Hong Kong’s benchmark is up 0.6%. The Chinese yuan settled at 6.6640 against the dollar despite the dollar’s gains elsewhere.
“Whether Shanghai can achieve effective and sustainable opening up is key,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong.
“New cases may emerge (and) the resumption of production is disrupted… This will affect different stock sectors unevenly,” he said.
The regional repercussions are already deep, with Japan reporting a sharp drop in factory production in April as Chinese demand slumps.
In commodity markets, Brent crude futures touched a two-month high of $123.58 a barrel after the European Union pledged to cut Russian oil imports by the end of the year.
The stronger dollar pushed spot gold slightly lower to $1,853 an ounce.
Bitcoin soared overnight, jumping nearly 8% and crossing $32,000 for the first time in three weeks. It was just below there at $31,680 in late Asian trade.