Most Asia-Pacific stock markets fell on Monday following the news of mobility restrictions in many Chinese cities amid rising COVID-19 cases in the country.
In Hong Kong, the Hang Seng Index fell by 2.02 percent during its final trading hour on Monday. The drop spread to other regions. The Shanghai Composite in mainland China closed at 3,085.04, losing 0.39 percent, and the Shenzhen Component plunged 0.411 percent and closed at 11,134.47.
On early Monday, the MSCI AC Asia Pacific Index—excluding Japan—was down 0.1 percent. It eventually plunged by 1.29 percent during closing. Last week, the index dropped from its two-month high for the same reason.
The South Korean Kospi went down by 0.4 percent during the opening. It later dropped further by 1.02 percent to 2,419.50. Australia’s S&P/ASX 200 index also recorded a 1.02 percent drop, closing at 2,419.50.
On the other hand, two major indexes in Japan closed stronger on Monday. Japan’s Nikkei showed a 0.3 percent growth in the opening. Nikkei later closed higher at 27,944.79, gaining 0.16 percent. Tokyo Stock Price Index, TOPIX, also gained 0.28 percent and closed at 1,972.57.
Investors are reportedly worried about the economic fallout, which may result from the Chinese government’s restrictions. The most populous district in Beijing urged its residents to stay home on Monday, while Guangzhou authorities reportedly implemented a five-day lockdown on at least one of its districts.
This new development setback hopes that the Chinese government would ease up its strict pandemic policy, which was one of the reasons oil prices went down by 10 percent last week.
The People’s Bank of China also recently announced that it would maintain the benchmark lending rate for the third consecutive month. Currently, the one-year loan prime rate is at 3.65 percent, while the five-year rate is at 4.3 percent.
U.S. futures, central bank policy
The U.S. futures market also dropped as investors tried to predict the monetary policy direction that the Federal Reserve would take in the following months.
Dow Jones futures were at 33,684.00, falling by 91.00 points or 0.27 percent. S&P 500 futures were down to 3,960.00, losing 14.00 points or 0.35 percent. Meanwhile, Nasdaq futures slipped by 36.50 points or 0.31 percent, at 11,671.50.
Futures indicate that there is a 76 percent of probability that the Fed will raise the benchmark rate by 50 basis points in the next FOMC meeting. The raise will place the interest rate in the 4.25 to 4.5 percent range. Analysts said the interest rates would peak at around 5.0 to 5.25.
Atlanta Fed President Raphael Bostic also implied that the central bank would increase the rates by a half percentage point. Bostic, however, warned that the market would see high-interest rates longer than expected. According to analysts, the Fed may cut the rate in late 2023.
JPMorgan head of research Bruce Kasman said there was already a deceleration in the pace of inflation in the U.S. Kasman added that the inflation in Europe would likely start showing moderation in December.
“But for central banks to pause they also need clear evidence that labour markets are easing," Kasman said. "The latest reports in the U.S., euro area, and U.K. point to only a limited moderation in labour demand, while news on wages points to sustained pressures.”