Asia equities rise as China returns

Asian markets rise after Fed hike

Overnight, Wall Street saw a powerful relief rally as the Federal Reserve hiked by 0.50% as expected while downplaying the risks of 0.75% hikes ahead. That saw pent-up bottom fishing demand propel the S&P 500 2.99% higher, the Nasdaq rallying 3.19%, while the Dow Jones gained 2.80%. In Asia, momentum has quickly waned, with futures on all three indexes easing by around 0.05% this morning.

In Asia, Japan and South Korea are on holiday, impacting on volumes and volatility. Mainland China markets have returned from the Labour Day holiday break and have posted modest gains this morning. That is a story being reflected across Asia today, gains but with far less exuberance than shown by the FOMO gnomes of Wall Street overnight.

There are a few reasons for this I believe. The 5.0% rise in oil prices overnight is a headwind for energy-dependent Asia. The unscheduled rate hike by India yesterday throws down the gauntlet to other central banks across Asia. Delisting fears surrounding US-listed China companies will be felt in Hong Kong. Finally, the Beijing virus restrictions and those elsewhere in China, and its covid-zero policy overall, is a powerful headwind to the region, much of which has a strong correlation to China’s economic performance.

Nevertheless, Asian markets are in the green today with mainland China’s Shanghai Composite rallying 1.10% higher, and the CSI 300 gaining 0.55%. Hong Kong is 0.65% higher while Singapore is flat ahead of Retail Sales data. Taipei has risen by 0.65%, while Kuala Lumpur continues to underperform, easing 0.30% lower today. Jakarta is on holiday, but Bangkok has added 0.65% with Manila gaining 0.90%. Australian markets have also risen, with gains possibly limited by slumping import data today. The ASX 200 has risen by 0.60%, with the All Ordinaries gaining 0.70%.

European stock markets slumped yesterday as the EU started the process of banning Russian oil imports by the end of the year. Any relief rally by European markets today after the Wall Street performance overnight is likely to be limited. The threat of energy shortages and the resulting potential slowdown in Europe will cap any incipient rallies in European equities.

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