Asia stocks slip as resurgent Fed fears offset China reopening hopes

By Ambar Warrick

Investing.com-- Most Asian stocks sank on Tuesday as concerns over a hawkish Federal Reserve were amplified by stronger-than-expected economic data, although losses in Chinese stocks were limited as more cities lifted anti-COVID measures.

Technology-exposed bourses logged the heaviest losses, with South Korea’s KOSPI, the Taiwan Weighted index, and the Hang Seng index falling between 0.8% and 1.2%.

The dollar strengthened, as did U.S. Treasury yields after strong factory orders and service sector data released overnight ramped up concerns that U.S. inflation could remain stickier than expected in the coming months. Wall Street indexes also plummeted after the readings.

While Asian stocks had rallied in November on signals from the Federal Reserve that interest rates will rise at a slower pace, the Fed also warned that stubborn inflation could see rates peak at much higher-than-expected levels.

Monday’s data, coupled with stronger-than-expected payrolls data released on Friday, fed into fears of stubborn inflation. Focus this week is on U.S. producer inflation data due on Friday, which is expected to provide more cues on price pressures in the country.

The Fed is also expected to hike interest rates by 50 basis points when it meets next week.

Chinese stocks somewhat bucked the trend on Tuesday, with the blue-chip Shanghai Shenzhen CSI 300 index rising 0.6%, while the Shanghai Composite index added 0.1%.

Beijing announced the easing of more testing mandates in the Chinese capital on Tuesday, following the relaxation of anti-COVID curbs in several major cities over the weekend.

Media reports also suggested that the Chinese government is gearing up to withdraw more curbs under its strict zero-COVID policy, following a wave of unprecedented protests against the law. But given that China is coping with its worst COVID outbreak with daily infections, the government may hesitate in announcing a complete pullback of its policy.

This notion did little to dissuade investors from piling into heavily discounted Chinese stocks, which spurred a stellar rally in the space over the past few weeks.

Australian stocks fell 0.5% after the Reserve Bank hiked interest rates by 25 basis points and signaled more hikes as it moves to curb rising inflation.

Philippine stocks were the best performers in Asia on Tuesday, rallying 2.6% as they snapped a three-day losing streak.

But the outlook for the country was clouded by higher-than-expected inflation, which is likely to invite more interest rate hikes by the central bank.

Indian stocks retreated further from record highs, with the Nifty 50 and BSE Sensex 30 indexes losing 0.5% each.