Thursday, December 1 2022

By Ambar Warrick– Most Asian stock markets rallied on Friday after weaker-than-expected U.S. inflation data hinted at a slightly less hawkish outlook for interest rates, while China’s pullback of certain COVID-related restrictions has resulted in outsized gains in local markets.

Chinese authorities on Friday shortened quarantine times for residents and incoming travelers, and removed a penalty for airlines that bring in infected passengers.

While the government has always maintained stricter COVID measures, as the country faces its worst outbreak since May, it has also stressed the need to minimize the economic impact of its strict zero COVID policy.

China’s blue-chip Shanghai Shenzhen CSI 300 index jumped 3.4%, while the Shanghai Composite index gained 2.4%.

Hong Kong’s Hang Seng index was Asia’s best performer on Friday, rising more than 7% after the government also announced it would ease COVID-related movement restrictions for residents and travelers international.

Chinese stocks have surged in recent weeks as social media rumors signaled a potential change in the government’s stance towards zero-COVID. The policy has halted China’s economic growth this year and badly shaken investor sentiment towards the country, damaging its markets.

Broader Asian stocks rallied, with tech-heavy exchanges gaining the most as the US is weaker than expected inflation data boosted expectations that the Federal Reserve will raise interest rates at a slower pace in the coming months.

Taiwan’s weighted index jumped 3.7%, also benefiting from reopening hopes in China, while South Korea’s KOSPI index gained 3.4%. Japan’s Nikkei 225 index also rose 3%, while India’s blue-chip Nifty 50 index rose 1.6%.

Markets are now pricing an over 80% chance that the Fed will raise rates a relatively smaller 50 basis points in December, amid signs that its big rate hikes this year are bearing fruit.

This idea was reinforced by a series of Fed members this week, who said they supported lower interest rate hikes to protect economic growth. But given that US inflation is still well above the Fed’s 2% annual target, the central bank should continue raising interest rates until it sees clearer signs that inflation subsides.

Still, most risk-oriented markets rallied on the prospect of a slower rise in interest rates, as rising rates were the biggest drag on risk-oriented markets this year. . Wall Street Indexes also rebounded overnight, with tech stocks leading the gains.

Among Antipodean markets, Australia’s ASX 200 index jumped 2.8%, with heavy mining stocks benefiting the most from hopes of a reopening in China, their biggest market.

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