SINGAPORE — Asian equities rose on Friday as investors looked to end the year on an optimistic note after U.S. data showed the Federal Reserve’s aggressive monetary policy was dampening inflationary pressures even as worries over COVID cases in China persist.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.71%, but is set to end the year down 19% – its worst performance since 2008.
Futures indicated European stocks were unlikely to retain the end-of-year cheer, with the Eurostoxx 50 futures down 0.16%, German DAX futures 0.13% lower and FTSE futures down 0.01%. E-mini futures for the S&P 500 fell 0.10%.
Investors have been worried that central banks’ efforts to tame inflation could lead to an economic slowdown, while the uncertainty over how swiftly China’s economy will recover in the wake of removal of COVID controls has kept markets subdued.
“Averting a downturn is a tall order,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank, noting that the odds are stacked against economies emerging unscathed from global policy tightening.
Going into 2023, inflation has still to be beaten and investors will also be wary of geo-political tensions arising from Russia’s war in Ukraine and diplomatic strains over Taiwan, analysts said.
Japan’s Nikkei rose 0.22%, while Australia’s S&P/ASX 200 index closed up 0.5%.
China’s blue-chip CSI 300 Index and the Shanghai Composite Index were both up 0.6%, while Hong Kong’s Hang Seng Index rose nearly 1%.
Chinese leaders have pledged to step up policy adjustments to cushion the impact on businesses and consumers from a surge in COVID-19 infections.
The world’s second-largest economy is expected to suffer a slowdown in factory output and consumption in the near-term as workers and shoppers fall ill.
China’s health system has been under stress due to soaring cases since the country started dismantling its “zero-COVID” policy at the start of the month, with several countries imposing or considering imposing curbs on travelers from China.
U.S. stocks closed sharply higher overnight, buoyed by data showing rising U.S. jobless claims, which suggested the Fed’s interest rate hikes might be starting to cool labor demand in its fight against inflation.
In the currency market, the U.S. dollar was on track for its best annual performance in seven years. The dollar index , which measures the greenback against six major currencies, fell 0.01% on Friday, but entering the 2022’s final few hours of trading, it had gained nearly 9% over the year.
Sterling was set for its worst performance against the dollar since 2016, when the UK voted to leave the European Union.
The pound was last trading at $1.2043, down 0.07% on the day. It has depreciated around 11% for the year.
The Japanese yen strengthened 0.25% versus the greenback at 132.64 per dollar on Friday. The euro was down 0.02% to $1.0659.
U.S. crude rose 0.23% to $78.58 per barrel and Brent was at $83.61, up 0.18% on the day.
Though way off the peaks seen earlier this year, Brent was still set to close 2022 with a 5.76% gain after rising 50.2% in 2021, while West Texas Intermediate (WTI) was on track for a 4.5% rise in 2022 following a 55% gain last year.
(Reporting by Ankur Banerjee; Editing by Simon Cameron-Moore and Sam Holmes)