Asian Equities: Asian equities in a defensive mood on China and interest rate concerns

HONG KONG – Asian equities traded cautiously on Tuesday as investors weighed China’s measures to cushion an economic slowdown and the prospect of aggressive monetary tightening from the US Federal Reserve.

Investors are also bracing for a spate of earnings that will help them gauge the impact of the Ukraine war and a surge in inflation on corporate financials. Netflix, Tesla and Johnson & Johnson will all report this week.

Moscow has refocused its ground offensive in Ukraine’s two eastern provinces, but Ukrainian President Volodymyr Zelenskyy has vowed to keep fighting.

Earlier in the Asian trading day, MSCI’s broadest index of Asia-Pacific stocks outside of Japan fell 0.5%, while US stock futures, the S&P 500 e-minis, gained 0.2%.

Australia’s S&P/ASX 200 edged up 0.66% as strong commodity prices pushed mining and energy stocks higher, while Japan’s Nikkei rose 0.18%.

China’s blue-chip CSI300 index was up 0.06% in early trade, while the Shanghai Composite Index rose 0.24%. Hong Kong’s Hang Seng index opened 2.4% lower, pressured by a slump in the city’s listed tech giants amid China’s recent regulatory crackdown on the sector.

The People’s Bank of China (PBOC) on Friday said it would cut reserve requirements for all banks by 25 basis points (bps) and release around 530 billion yuan ($83.25 billion) of long-term liquidity to cushion a slowdown.

However, investors felt the smaller-than-expected cut may not be enough to reverse a sharp slowdown in the world’s second-largest economy, which could significantly weigh on global growth.

China’s gross domestic product (GDP) on Monday beat analysts’ expectations, rising 4.8% in the first quarter year on year, while data on March activity showed weakness in consumption, housing and exports, which were buoyed by COVID-19 restrictions were affected.

Analysts said the key question is whether the authorities would make adjustments to the strict anti-COVID-19 measures.

“We expect more policy support, mainly in the form of more infrastructure investment, stronger credit growth and easier housing policies. But we don’t see the government doing “whatever it takes” to meet the 5.5% growth target or postpone Covid policy anytime soon,” said Wang Tao, UBS Investment Bank’s head of Asia economics and chief China economist Research.

Wall Street ended the day on Monday with a choppy trading day as investors contrasted Bank of America’s upbeat quarterly earnings with rising bond yields ahead of more earnings indicators expected this week.

A sharp cut in global growth expectations from the World Bank, coupled with weakness in the latest Chinese economic data in March, brought some pessimism to US markets, which opened on Monday after a holiday-shortened previous week.

The Dow Jones Industrial Average ended down 0.11%, while the S&P 500 was down 0.02% and the Nasdaq Composite was down 0.14%.

Markets were closed Monday in Australia, Hong Kong and many parts of Europe for the Easter holiday.

The benchmark 10-year Treasury yield was last seen at 2.845%, having previously hit 2.884% on Monday, the highest since December 2018 as investors braced for the Federal Reserve to raise interest rates at its May meetings and June would raise by 50 basis points to curb rapid inflation.

The two-year yield, which rises on traders’ expectations for higher Fed fund rates, hit 2.4459% compared to a US close of 2.46%.

The dollar index, a measure of the greenback’s value against six major currencies, rose to 100.88 after rising to 100.86 on Monday, its highest level since April 2020.

Oil prices were slightly lower on Tuesday after being boosted in previous sessions by concerns over tight global supply amid the Ukraine crisis.

US crude fell 0.57% to $107.59 a barrel. Brent crude fell to $112.7 a barrel.

Gold prices stabilized on Tuesday after being within a stone’s throw of the key $2,000 an ounce level in the previous session.

Spot gold was trading at $1,977.18 an ounce. Asian Equities: Asian equities in a defensive mood on China and interest rate concerns

Jaclyn Diaz

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