US stocks fell on Wednesday, all but erasing hopes of a festive rally to end a dire year for equities, though Hong Kong-listed shares climbed as China eased its zero-Covid restrictions.
Hong Kong’s Hang Seng index added 1.5 per cent, with all sectors apart from real estate in positive territory. The index is set to finish the year 14 per cent lower but has risen by a third since the end of October as Beijing has loosened pandemic restrictions that have constrained China’s economic growth since early 2020.
A brief rally for US stocks had more than reversed by midday in New York, with Wall Street’s benchmark S&P 500 and the tech-heavy Nasdaq Composite down 0.9 per cent and 1.2 per cent, respectively.
In Europe, the FTSE 100 reopened after the Christmas holidays, rising 0.3 per cent. Europe’s regional Stoxx 600 fell 0.1 per cent.
Officials at the Federal Reserve have hinted that high rates of inflation mean US interest rates may have to rise above 5 per cent, from the current level of between 4.25 per cent and 4.5 per cent, denting tech stocks while benefiting consumer staples.
“We came in hoping for a seasonal rally, and that didn’t come,” said Steve Holt, head of international equity sales at Baird. Tesla’s stock has fallen 40 per cent in a month, Apple has plunged 11 per cent and Amazon is down 11 per cent.
“I’ve never seen the Fed so aggressive against the market in 30 years,” Holt added. “Value investors, those who want to get rich slower, are having a better time of it.”
Others see opportunity in China, where the National Health Commission on Monday said it would drop quarantine requirements for inbound travellers from January 8, having earlier this month scrapped the requirement for positive Covid-19 cases to quarantine at centralised facilities.
Cases have soared as a result, with officials estimating that roughly 250mn people, or 18 per cent of the population, were infected with Covid in the first 20 days of December.
Still, Iris Pang, chief economist for greater China at ING, said Beijing’s relaxation of its zero-Covid policies would boost domestic consumption and travel-related industries in particular, even as economic growth in Europe and the US slowed, denting international demand for Chinese goods.
“Our house view is that the US and Europe could enter a mild recession in the first half of 2023,” Pang said. “We therefore expect that the Chinese government will increase fiscal strength to support the domestic economy by continuing construction of uncompleted home projects and plans for more transport, energy and technology infrastructure.”
China’s CSI 300 index of Shanghai- and Shenzhen-listed shares fell 0.4 per cent on Wednesday, though it has risen 10 per cent since mid-October.
Commodity prices declined, with Brent crude, the international oil benchmark, down 1.9 per cent at $82.73 a barrel. Dutch TTF gas futures, the benchmark European contract, traded 0.6 per cent lower at €82.40 a megawatt hour, having fallen as much as 7.4 per cent earlier in the day owing to milder-than-expected weather and lower demand.
Prices for shorter-term, interest rate-sensitive US Treasuries were stable, with the yield on the two-year note down 0.01 percentage points at 4.36 per cent. The yield on the benchmark 10-year note added 0.03 percentage points to 3.88 per cent — its highest level since early November. Yields fall as prices rise.
