Asia shares, oil prices rally as China speculation swirls

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By Wayne Cole

SYDNEY (Reuters) – Asian shares rallied on Tuesday as Beijing’s latest move to support developers boosted the property sector and rumours swirled that recent public unrest might prompt an earlier loosening in COVID-19 restrictions.

The speculation was stoked by reports Chinese health officials would hold a news conference later on Tuesday to discuss coronavirus control measures.

“News of the press conference at 3pm (0700 GMT) came out, and I think that has gotten the market excited over the possibility that we could see China continue to ease up,” said Khoon Goh, head of Asia research at ANZ.

“The yuan has rallied, and basically Chinese equities and everything else in Asia has responded positively to that.”

Shares of Chinese property companies certainly surged after the country’s securities regulator lifted a ban on equity refinancing for listed property firms.

That helped Chinese blue chips jump almost 3%, in the largest one-day rally in a month and a marked reversal of Monday’s steep falls.

MSCI’s broadest index of Asia-Pacific shares outside Japan followed with gains of 1.8%, while Hong Kong’s Hang Seng climbed 3.9%.

The sudden bout of optimism on China combined with talk of possible output cuts by OPEC+ to help oil prices rally. [O/R]

U.S. crude futures bounced $1.24 to $78.48 a barrel, having hit their lowest this year overnight, while Brent climbed $1.64 to $88.83.

Not all markets seemed convinced the rally would last. Japan’s Nikkei slipped 0.5%.

EUROSTOXX 50 futures were flat and FTSE futures up 0.1%.

S&P 500 futures inched up 0.2% and Nasdaq futures 0.4%.

Underlining the far-reaching impact of Beijing’s policies, Apple Inc shares had fallen 2.6% on reports COVID-19 restrictions would cause a sizable shortfall in production of iPhone Pro units.

“The zero China COVID policy has been an absolute gut punch to Apple’s supply chain,” said Daniel Ives, an analyst at Wedbush.

“We estimate that Apple now has significant iPhone shortages that could take off roughly at least 5% of units in the quarter and potentially up to 10% depending on the next few weeks in China around Foxconn production and protests.”

HIGHER FOR LONGER

Richmond Federal Reserve Bank President Thomas Barkin became the latest official to douse speculation the U.S. central bank would reverse course on interest rates relatively quickly next year.

That heightened tensions ahead of speech by Fed Chair Jerome Powell on Wednesday that is shaping up to be a major messaging event as markets yearn for a pivot on policy.

Analysts suspect they may be disappointed.

“We envision him basically confirming a slower pace of hikes at the December meeting, which is almost entirely priced in,” said Jan Nevruzi, an analyst at NatWest Markets. “But we also think he will reiterate that the Fed intends to stay in restrictive territory through next year.”

“The softening in the October CPI was welcome news, but hardly a complete victory yet, while growth and labour market data are still strong,” he added “It doesn’t feel like there is upside for Powell to dial back on the hawkishness.”

The Fed is not alone in being hawkish, with European Central Bank President Christine Lagarde warning that euro zone inflation has not peaked and could go even higher.

Figures for inflation in Germany and Spain are due later on Tuesday, ahead of the main euro zone report on Wednesday.

The competing comments on policy made for volatile currency trading, with the euro edging up to $1.0377, having hit a five-month peak of $1.0497 overnight before falling back.

The dollar dipped to 138.65 yen, after briefly touching a three-month trough of 137.50 overnight. The dollar index eased 0.3% to 106.29, but had been as low as 105.31 the previous session.

The dollar also shed 0.9% against the offshore yuan to 7.1830, erasing all the gains made on Monday.

Bitcoin was again choppy after major cryptocurrency lender BlockFi filed for Chapter 11 bankruptcy protection along with eight affiliates.

In commodity markets, the gyrations in the dollar saw gold rise 0.5% to $1,751 an ounce. [GOL/]

(Reporting by Wayne Cole and Rae Wee; Editing by Sam Holmes and Bradley Perrett)