Asia stocks rally, US dollar drops on Fed rate and China Covid-19 policy pivots

Hong Kong led the gains in Asia for most of the day on Thursday, with tech giants including Alibaba and Tencent tracking massive gains in their US-listed stocks. PHOTO: AFP

HONG KONG - Asian stocks extended a global rally on Thursday and the United States dollar fell after Federal Reserve chairman Jerome Powell flagged a slowdown in the pace of interest rate hikes and China opened the way for a softer approach to fighting Covid-19.

A growing sense of hope that months of sharp monetary tightening around the world are finally reining inflation back from its decades-long highs sent equities surging in November, even as policymakers warned more work had to be done.

Analysts said the reaction to Mr Powell’s remarks, which had been expected to be his most dovish in some time, highlighted a sense of relief among investors that a long-hoped-for pivot was on the cards.

All three main indexes on Wall Street surged overnight on Wednesday, with the Nasdaq leading the way as rate-sensitive tech firms rocketed. The gains extended November’s rally and helped claw back more of the hefty losses suffered for much of 2022.

Hong Kong led the gains in Asia for most of the day on Thursday, with tech giants including Alibaba and Tencent tracking massive gains in their US-listed stocks.

Japan’s Nikkei closed up 0.92 per cent while Australia’s S&P/ASX 200 index added 0.96 per cent.

Hong Kong’s Hang Seng rose 0.75 per cent, while the Shanghai Composite Index climbed 0.45 per cent.

Singapore’s Straits Times Index pared gains to close 0.07 per cent higher.

The rallies were also helped by signs that China is edging towards a more pragmatic approach to fighting the coronavirus, having hammered the economy this year with its strict zero-Covid-19 strategy of lockdowns and mass testing.

After widespread unrest against the measures – and calls for more political freedoms – the authorities have announced moves aimed at loosening some restrictions.

On Wednesday, Vice-Premier Sun Chunlan, who is heading China’s Covid-19 campaign, told the National Health Commission that the fight was entering a new phase as Omicron weakens and more people are vaccinated.

Bloomberg News also noted that she did not refer to “dynamic Covid-zero”, the term used to explain Beijing’s strategy.

“It is clear that the authorities are setting the stage for Covid measures to be relaxed,” said Mr Justin Tang at United First Partners.

“Equity prices will see a boost as China joins the rest of the world in living with Covid.”

The US dollar was suffering a sell-off, having soared across the board this year as Fed monetary policy diverged more and more from other central banks.

The greenback tumbled as much as 1.64 per cent to 135.85 yen, its lowest level since Aug 23, but then recovered a little to 136.46.

At 5.30pm, the Singapore dollar was up 0.26 per cent to 1.3579 per US dollar from Wednesday’s close.

In a much-anticipated speech on Wednesday, Mr Powell said the full effects of the Fed’s belt-tightening had yet to be felt, but that it “makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down”.

He signalled that the December gathering would likely see officials lift borrowing costs by 50 basis points, having pushed them up by a bumper 75 points at the past four meetings.

However, he did say policy would need to remain tight “for some time” to restore price stability, echoing comments from other Fed officials who have suggested there might not be any cuts until 2024.

In another sign of hope, data earlier showed that euro zone inflation eased for the first time in 17 months in November. AFP

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