Asia stumbles as China COVID, sterling wobbles shake sentiment
SINGAPORE -Asian stocks wallowed at two-year lows on Wednesday, weighed by signs China had no immediate plans to ease strict COVID curbs while an unrelenting dollar rally and wobbles in the U.K. bond market and pound shook global investor sentiment.
After a torrid overnight session, sterling emerged from a two-week low, helped by a report the Bank of England (BOE) was prepared to extend its bond-buying programme beyond Friday, having previously spooked markets by threatening to withdraw support this week.
The European Stoxx 50 futures index was down 0.27 per cent.
"Impromptu changes to U.K. economic policy leave more question marks than answers around credibility and are a headwind for GBP assets," wrote Stephen Innes of SPI Asset Management.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.50 per cent, weighed heavily by China's CSI300 index, which fell 1.40 per cent while Hong Kong's Hang Seng index lost 2 per cent.
The official newspaper of China's ruling Communist Party warned on Wednesday that Beijing would persist with its COVID-19 policies to avoid losing control over local coronavirus outbreaks.
Damien Boey, chief macro strategist at Barrenjoey in Sydney said the BOE was having to work harder than usual to keep the risk premium in the gilt markets under control.
Sterling rose 0.4 per cent to $1.1008 in late Asian trade but there are broader concerns about the direction of policy in Britain.
"It’s very rare that I have seen such a misguided combination of policy and policy communications as the new Tory government delivered," former U.S. Treasury Secretary Larry Summers said at Citi's investment conference in Sydney.
"I would have thought that by now it was something that should be universally understood that if you are making a military intervention in a country, it is a terrible idea to announce the deadline by which you will withdraw because it just provides a roadmap for your opposition and encourages them to wait you out."
In Japan, the rampaging dollar breached 146 yen for the first time in 24 years, prompting authorities in Tokyo to pledge necessary steps in the foreign exchange market if needed. The Nikkei share average was up 0.01 per cent in the afternoon.
Seoul's KOSPI index was up 0.52 per cent after the Bank of Korea raised rates by 50 basis points for a second time since July, as expected.
Renewed U.S. dollar strength also sent the risk-sensitive Australian dollar to $0.6247, the lowest since April 2020.
U.S. inflation data on Wednesday and Thursday is expected to keep the Fed on an aggressive rate hike path.
Overnight, the S&P 500 and Nasdaq Composite fell 0.65 per cent and 1.10 per cent, respectively, though the Dow Jones Industrial Average managed to close up 0.12 per cent.
Benchmark 10-year notes dipped to 3.9289 per cent, after opening at 3.9510 per cent.
Brent crude futures fell 46 cents, or 0.5 per cent, to $93.83 a barrel by 0410 GMT. U.S. West Texas Intermediate crude was at $88.81 a barrel, down 54 cents, or 0.6 per cent.
It was the third straight dip in prices as investors worried about falling fuel demand and tightening COVID-19 curbs in China.
Spot gold gained 0.07 per cent to $1,666.9 an ounce.
The International Monetary Fund on Tuesday cut its 2023 global growth forecast from 2.9 per cent to 2.7 per cent, warning that pressures from inflation, war-driven energy and food crises, and higher interest rates may tip the world into recession and financial market instability.
(Additional reporting by Tom Westbrook and Stella Qiu; Editing by Lincoln Feast and Sam Holmes)
