TOKYO (Reuters) – Asian equities rebounded from a three-month low on Friday thanks to a late-day rally on Wall Street, as optimism about the global economic recovery was overshadowed by mounting tensions between the West and China.
MSCI’s ex-Japan Asia index rose 0.37% after hitting a near three-month low on Thursday, while the Shanghai Composite Index gained 0.78%, down three days.
“The recent declines in Chinese equities have been worrying, but there has been no change in the fact that the Chinese economy is recovering,” said Yasutada Suzuki, head of emerging markets investment at Sumitomo Mitsui Bank.
On Thursday, Chinese stocks fell near a three-month low earlier this month. The European Union joined Washington’s allies this week by imposing sanctions on officials in China’s Xinjiang region over allegations of human rights violations, triggering retaliation from Beijing.
“All sanctions so far have been largely symbolic and should have little economic impact. But the confrontation between China and the US is affecting market sentiment. It may take a while for them to come to a compromise, ”added Suzuki.
Japan’s Nikkei rose 0.89% after Wall Street stocks rallied, driven by cheap, cyclical stocks battered by the pandemic.
The Dow Jones Industrial Average rose 0.62% and the S&P 500 gained 0.52%, while the Nasdaq Composite added only 0.12%.
Analysts said trading was driven more by quarter-end investment portfolio rescheduling by institutional investors than news outlets, although they noted that overnight headlines were especially favorable for stocks.
Data from the US Labor Department showed that unemployment benefit claims fell to a year low last week, a sign that the US economy is on the brink of stronger growth as the public health situation improves.
In his first formal press conference, US President Joe Biden said he would double his administration’s vaccination plan after reaching the previous target of 100 million shots 42 days ahead of schedule.
But while the improvement in the US health crisis has underpinned risk appetite worldwide, investors are increasingly alarmed by a divergence in health conditions.
“The vaccination in continental Europe is behind schedule. Relative to the US, economic reopenings are likely to be delayed as some countries are forced to enforce lockdowns, ”said Soichiro Matsumoto, chief investment officer, Japan, at Credit Suisse’s private banking unit in Tokyo.
That put pressure on the euro, which licked its wounds at $ 1.1780 after dropping overnight to $ 1.1762, its lowest level since November.
The dollar also rose to 109.17 yen, within a striking distance of last week’s nine-month high of 109.365 yen.
The US currency index was near its highest level since mid-November, rising 2.0% so far this month.
“The dollar is absolutely crucial,” said James Athey, investment director at Aberdeen Standard Investments in London.
“When the dollar starts to rise, that becomes a problem. It means commodity weakness and emerging market weakness and it is starting to counterbalance disinflation. “
Oil prices rebounded a bit after falling 4% on Thursday, although they are on track for their third straight week of losses amid concerns about a further decline in demand. [O/R]
In addition to Europe, large emerging economies such as Brazil and India are also facing a revival of COVID-19 business.
The market continued to receive some support from concerns over supply disruptions as a stranded container ship in the Suez Canal could block the vital shipping route for weeks.
US crude last rose 0.99% at $ 59.14 a barrel and Brent was at $ 62.44, up 0.79%.
Additional reporting by Katanga Johnson in Washington; edited by Richard Pullin and Ana Nicolaci da Costa