Firm Asian shares mitigate slide in US futures, commodities

Sydney — US stock futures and commodities slipped in Asia on Monday after Beijing denied it was considering easing its zero Covid-19 policy, though resilience in Asian equities took some of the sting out of the selling.

Risk assets had rallied on Friday amid speculation China was preparing to relax its pandemic restrictions, but at the weekend health officials reiterated their commitment to the “dynamic-clearing” approach to Covid-19 cases as soon as they emerge.

“Despite the denial, notions that China will pivot to living with Covid-19 in the new year are unlikely to be quashed given the very real toll that zero-Covid-19 is having on the economy,” said Tapas Strickland, head of market economics at NAB.

“With China going into winter, most analysts think a change in zero-Covid-19 is unlikely until at least March.”

Speculation that China might open its economy saw copper jump 7% on Friday in its biggest one-day rally since 2009, while a range of resources all benefited from hopes of increased demand.

It also sent the yuan surging and triggered a round of profit taking on long US dollar positions, particularly against commodity-sensitive currencies such as the Australian dollar.

Index bounced

A little of that reversed on Monday, with the Aussie dollar down 0.7% at $0.6421 after jumping 3% on Friday. The dollar gained 0.7% on the offshore yuan.

The US dollar index bounced 0.3% having dived almost 2% at the end of last week. The dollar was 0.4% firmer on the yen at ¥147.22, while the euro eased a fraction to $0.9929.

S&P 500 futures dipped 0.2%, while Nasdaq futures lost 0.3%. Euro Stoxx 50 futures lost 0.2% and FTSE futures 0.6% amid reports the UK government was planning tax rises and spending cuts.

Chinese blue chips edged up 0.2%, a decent performance given data released earlier showed Chinese exports and imports contracted in October and missed forecasts.

Illustrating the costs of Beijing’s strict policies, Apple on Sunday said it expects lower iPhone 14 Pro and iPhone Pro Max shipments than previously anticipated as Covid-19 restrictions temporarily disrupt production.

Still, investors seemed to hope there might be something to the China loosening story and MSCI’s broadest index of Asia-Pacific shares outside Japan added 1.0%.

Japan’s Nikkei rose 1.2% and South Korea 0.8%.

Jobs report

Aiding risk sentiment at the margin were reports the White House is privately encouraging Ukraine to signal an openness to negotiate with Russia.

Dealers were still assessing a mixed US jobs report that showed solid gains in the payrolls survey but softness in the less reliable household survey of unemployment.

Four Federal Reserve policymakers on Friday indicated they would still consider a smaller interest rate hike at their next policy meeting, sounding less hawkish than chair Jerome Powell.

At least seven Fed officials are scheduled to speak this week, which will help refine the rate outlook with markets now narrowly leaning towards a half-point rate hike next month to 4.25%-4.5%.

“We maintain the Fed will see sufficient progress on inflation to pause at 4.75% in February, but the risks are skewed to more hikes that are likely to bring about a recession sometime later in 2023 or early 2024,” said Bruce Kasman, head of economic research at JPMorgan.

Short-term Treasuries managed a minor rally on Friday with two-year yields edging back to 4.68% and off highs not seen since 2007.

The market faces a major hurdle on Thursday when US consumer prices for October are released, with any upside surprise set to test hopes for a step down in Fed hikes.

Median forecasts are for annual CPI inflation to slow to 8.0% and for the core to dip a tick to 6.5%.

Also of note will be midterm US elections on Tuesday where Republicans could win control of one or both chambers and lead to a deadlock on fiscal policy.

In commodity markets, gold eased back to $1,671 an ounce after jumping more than 3% on Friday.

Oil futures lost some of their recent gains with Brent off $1.07 at $97.50, while US crude dropped $1.26 to $91.35 per barrel.

Reuters