Asian stocks were digesting news about growth concerns in China and rising interest rates in the United States on Tuesday with Japan edging marginally higher, but Hong Kong falling sharply in early trade.
Chinese growth numbers for the first quarter of 2022 exceeded expectations on Monday but the government warned of “significant challenges” ahead.
Shanghai, the country’s economic centre, is in the throes of an intense COVID-19 lockdown with restrictions – which have also hit tech hub Shenzhen and the northeastern grain basket of Jilin – shutting supply lines.
Investors were left weighing whether attempts to lift the economy by Chinese policymakers – who have held off cutting interest rates – would offset Beijing’s zero-COVID policies.
“The unwillingness to loosen monetary policy further before COVID is under control means that market sentiment will probably remain bleak in coming weeks,” the Gavekal Dragonomics team told Bloomberg. “However, equities will rally even harder if lockdowns lift and policymakers start to make up for lost growth with additional easing measures.”
The unwillingness [of the Chinese authorities] to loosen monetary policy further before COVID is under control means that market sentiment will probably remain bleak in coming weeks- Gavekal Dragonomics
Japan’s Nikkei 225 made healthy gains in early trade with South Korea, mainland China, Taiwan, and Australia all edging upward. But Hong Kong plummeted more than 2.5 per cent in the first hour of trading after a four-day holiday hiatus.
The impact of monetary policy tightening in the United States to combat inflation was another variable watched closely by investors.
Meanwhile, oil prices continued to climb as Libya’s National Oil Corporation announced the closure of operations in major sites after staff in the key export terminal of Zueitina and the Al-Sharara oil field were blocked from working.Stephen Innes at SPI Asset Management said the rise in prices shows “just how bullishly reactive oil markets have become to supply shocks.”
And the Japanese yen continued its drop against the dollar after crossing a new 20-year low on Monday, reflecting the continued accommodation of Japanese monetary policy, while US policymakers move to hike interest rates.