Asian stock markets mostly pared early losses on Tuesday, supported by an improved sentiment for China shares, but concerns remained that Beijing could re-impose strict COVID restrictions that could lead to supply chain disruptions.
The dollar bounced back from strong overnight gains, while oil took a break from Monday’s comeback.
European stock futures indicated a dull start with Eurostox 50 futures up 0.15%, German DAX futures up 0.09% and FTSE futures up 0.30%.
The broader Asia-Pacific index ex-Japan recovered earlier losses to inch 0.07% higher in the afternoon.
The biggest driver for the recovery was China, with its benchmark up 0.43%. Hong Kong’s benchmark index narrowed losses to 0.7%.
Support came from the property sub-sector, as new government moves late on Monday to aid the struggling industry helped buoy sentiment.
China’s central bank said late Monday that it would provide 200 billion yuan ($28 billion) in loans to six commercial banks to complete housing construction.
However, the gains in China were limited as the COVID-19 situation worsened in the country.
The fact that China has shown movement away from zero COVID is “very significant” but has been drowned out by the latest news on the resurgence of cases in Beijing, said Ray Attrill, head of FX strategy at National Australia Bank.
The Chinese capital warned on Monday that it faces its most severe test of the pandemic, raising investor concerns that China may have to reimpose strict mobility restrictions and issue stay-at-home orders in cities. can be forced.
Redmond Wong, Greater China market strategist at Hong Kong’s Saxo Markets, said rising cases in manufacturing cities could lead to supply chain disruptions.
Japan’s benchmark Nikkei average rose 0.69% as yen weakness against the dollar raised prospects for domestic manufacturers.
Australian shares rose 0.59% on strength in miners and banks.
The dollar pared its strong overnight gains on Tuesday after investors flocked to the safe-haven currency on nerves over China’s COVID flare-up, but analysts at National Australia Bank questioned whether demand for the greenback was sustainable.
“Evidence that US inflation has peaked and may fall significantly in 2023, along with developments in China and Europe, leads us to believe that a USD depreciation cycle is now in train,” he said in a note on Tuesday.
US Treasury yields edged higher on Tuesday amid expectations of a further interest rate hike from the Federal Reserve, as markets await the latest Fed minutes to be released on Wednesday to provide more clarity.
The benchmark 10-year Treasury yield edged up five basis points.
Oil prices rose on Tuesday, a day after Saudi Arabia denied media reports that it was discussing an increase in oil supplies with OPEC and its allies.
US crude gained 0.36% to $80.33 a barrel in early trade and Brent was up 0.49% to $87.88.
Spot gold was trading up 0.3% at $1,742.91 an ounce.