Shares rose in Asia on Friday after an advance on Wall Street led by the latest rally in technology companies.
Chinese benchmarks rose on reports the government is planning new measures to support the ailing property sector, which has dragged on growth over the past several years.
The relaxation of some of the country’s “zero-COVID” rules is also boosting hopes for the economy will gain momentum, though experts say it will take months for tourism and other business to recover from the disruptions of the pandemic.
“Asian stocks are a bit higher, but full-out exuberance has been tempered by rising COVID cases and skepticism of the force of reopening economic tailwind that the current level of Asian risk assets implies,” Stephen Innes of SPI Asset Management said in a commentary.
While outside experts had increasingly criticized China’s containment policy, which sought to isolate every case, as unsustainable, they have also warned that the country will now face a challenging first wave, as the loosened measures will no doubt fuel an increase of cases.
The finishing line for one of the most turbulent financial market years on record is in sight, but investors must brace for one final wave of volatility this week as the Federal Reserve and three other major central banks set interest rates.
The Fed, European Central Bank, Bank of England and the Swiss National Bank are all widely expected to raise rates by 50 basis points each later this week, so the potential market disruption will come from the subsequent press conferences.
While the data showed inflation slowing over the last 12 months, the monthly rise fuelled concerns that next week’s report on the consumer price index may indicate inflation is sticky and lead the Fed to not cut rates as soon as many anticipate.
Fed policymakers are expected to raise rates by 50 basis points next Wednesday at their last meeting of the year, to a range of 4.25% to 4.50%, which would mark a slower pace of rate increases.
In Asia, the central bank of The Philippines is expected follow the Fed and reduce the pace of rate hikes to 50 bps from 75 bps at its last meeting, and policymakers in Taiwan are expected to deliver another 12.5 bps hike.
Chinese retail sales, Indian inflation and Australian unemployment are among the regional economic data highlights this week, and markets will continue to be sensitive to the ebb and flow of Beijing relaxing its zero-COVID policy.
But the direction and tone for the week will be set by Fed Chair Jerome Powell in Washington, and to a lesser extent European Central Bank President Christine Lagarde in Frankfurt and Bank of England Governor Andrew Bailey in London.
So far this month we have had ‘hawkish’ hikes from Australia and India, countered by a ‘dovish’ hike from Canada. Investors go into the meetings in cautious mood – the MSCI Asia ex-Japan index has chalked up two consecutive weekly declines, and the MSCI World index just posted its biggest weekly fall since September.
This is despite the clear optimism surrounding China’s economic reopening – Shanghai stocks gained 3.3% last week and have risen five of the last six weeks, and both the onshore and offshore yuan exchange rates rallied through the 7 per dollar mark last week.
But as China’s COVID curbs fade, China’s health system will be severely tested and the impact on its 1.4 billion population remains to be seen.
In Hong Kong, meanwhile, pro-democracy tycoon and China critic Jimmy Lai has been sentenced to more than five years in prison for fraud.
Annual inflation in India is expected to have slowed to 6.4% in November from 6.77% in October, which would be the lowest since February.
Three key developments that could provide more direction to markets on Monday are India inflation (November), Japan goods prices (November) and Japan Business Survey index (Q4).
