AFP

Most markets rose Monday on hopes the Federal Reserve would soon slow its pace of interest rate hikes, though the mood was darkened by worries over the China outlook after President Xi Jinping tightened his grip on power.

The yen weakened against the dollar after a short rally as speculation swirled that Japanese authorities had stepped into forex markets again to support their currency for a second time in as many sessions.

Tokyo, Sydney, Seoul and Taipei led gains after a strong performance in New York that was sparked by a report the Fed could begin to take its foot off the pedal in its rate hike campaign.

The Wall Street Journal said some officials were keen to discuss a slowdown when they meet next month.

Markets have been hammered this year by fears that moves by the Fed and other central banks to fight decades-high inflation will spark a recession.

Officials had been expected to lift rates 75 basis points for a fourth successive time next month, while bets were increasing on another such move in December.

“The mere suggestion of the Fed stepping down from 75 basis points to a 50 basis point incremental rate hike in December produced a fierce rally in US equities, partial reversal of the recent surge in US Treasury yields and smart about-turn in the US dollar,” said National Australia Bank’s Ray Attrill.

But while most equity markets across the region were well up, Chinese markets were hammered by the reshuffle at the top of government. Hong Kong fell more than six percent and Shanghai was two percent down.

– Zero-Covid worries –

Xi, who was at the weekend given a third five-year term as leader, handed key positions to loyalists who back his strategy of fighting Covid outbreaks with lockdowns and other strict measures.

The policy has been blamed for the sharp drop in growth in the world’s number two economy, and while data showed Monday that it expanded more than forecast in the third quarter, traders remain on edge.

In a speech to close the Congress on Saturday, Xi insisted his zero-Covid policy had been a success.

And he promoted Li Qiang, the architect of a two-month lockdown in Shanghai that crippled the financial hub’s economy, to the second most powerful post in the Communist Party.

“The market is concerned that with so many Xi supporters elected, Xi’s unfettered ability to enact policies that are not market friendly is now cemented,” Justin Tang of United First Partners said.

Tech firms were among the worst hit in the Hong Kong selloff, hammered in recent years by Xi’s crackdown on the sector that has scythed firms’ profits and wiped billions off their valuations.

E-commerce giants Alibaba and JD.com each saw double-digit losses, as did Tencent. The Hang Seng tech index was close to 10 percent down.

The onshore yuan dipped as much as 0.4 percent to 7.2552 to the dollar — its weakest since January 2008.

Investor worries about China also weighed on oil markets with both main contracts in retreat as the prospect of more possible lockdowns hitting demand expectations.

On currency markets, the yen was hovering just above 149 to the dollar, having strengthened to 145.65 earlier amid talk that authorities had intervened to support the unit.

Observers said officials likely stepped in on Friday after the dollar soared to a fresh 32-year high of 151.93 yen. That came after warnings from the finance ministry that it was keeping tabs on movements, and follows a similar move last month.

“Whilst the (finance ministry) has since declined to comment on whether they intervened, such action has not come without multiple warnings from officials,” said Matt Simpson at City Index.

“The MoF last week said they will deal with speculators ‘severely’ and the strong price reaction on Friday suggests they did just that.

“Price action has also been erratic in Monday’s Asian session, which points to another probable intervention.”

The pound rose after former UK prime minister Boris Johnson said he would not stand for the Conservative leadership again, after the resignation of Liz Truss last week.

His decision leaves his former finance minister Rishi Sunak the favourite to take the reins and become the country’s third premier this year.

The choice of the less-controversial Sunak could provide a little stability in Westminster after weeks of turmoil sparked by Truss’s debt-fuelled mini-budget that hammered the pound and sent shivers through markets.

London slipped in the morning, though Paris and Frankfurt rose even as data showed further weakness in the eurozone economy.

– Key figures around 0810 GMT –

Tokyo – Nikkei 225: UP 0.3 percent at 26,974.90 (close)

Hong Kong – Hang Seng Index: DOWN 6.4 percent at 15,180.69 (close)

Shanghai – Composite: DOWN 2.0 percent at 2,977.56 (close)

London – FTSE 100: DOWN 0.3 percent at 6,946.36

Pound/dollar: UP at $1.1330 from $1.1258 on Friday

Dollar/yen: UP at 149.15 yen from 147.65 yen

Euro/dollar: DOWN at $0.9841 from $0.9863

Euro/pound: DOWN at 86.88 pence from 87.26 pence

West Texas Intermediate: DOWN 1.5 percent at $83.81 per barrel

Brent North Sea crude: DOWN 1.3 percent at $92.27 per barrel

New York – Dow: UP 2.5 percent at 31,082.56 (close)

Chinese leader Xi Jinping has emerged from a five-year congress with even more power over the ruling Communist Party. AFP examines how Xi is expected to handle the key issues facing the country.

– Slowing economy –

China’s slowing economy will likely dominate Xi’s next five years in power but his decision to pack the Communist Party’s top leadership with loyalists has stoked concerns about him prioritising ideology at the expense of growth.

After decades of high growth, China’s economy is running out of steam, with analysts widely expecting the country will struggle to attain its 2022 growth target of around 5.5 percent.

And Xi’s move suggests the days of liberal reformers steering the world’s second largest economy have come to an end.

While past decades saw China’s private sector grow rich on easy credit and hefty profits, Xi’s next term may see Beijing revert to more old-school economic management, with a fresh focus on shoring up heavy industry and a continuation of a crackdown on big tech. 

Xi has thrown his weight behind the development of a more consumption-driven economy — a policy known as “dual circulation” — and has sought to address China’s yawning wealth gap under the banner of “common prosperity”. 

With the United States promising to prioritise maintaining “an enduring competitive edge” against China as the two superpowers battle for dominance over technology, Beijing may find itself under growing pressure internationally as growth slows at home.

– Tensions over Taiwan –

After years of ratcheting up tensions with Taiwan, an increasingly emboldened Xi could decide the time is right to fulfil Beijing’s longstanding ambition of retaking the self-ruled democratic island.

US officials have argued that the world is closer than ever to seeing a conflict over the island — and that China could invade as soon as this year.

China has made a “fundamental decision that the status quo was no longer acceptable, and that Beijing was determined to pursue reunification on a much faster timeline,” US Secretary of State Antony Blinken said this month.

Beijing insists its policy towards Taiwan has not changed, but the rhetoric and actions towards the island have become more pronounced.

The Communist Party for the first time enshrined its opposition to Taiwanese independence in its constitution at its just-ended congress which handed Xi a third term in power.

But any move to invade Taiwan would wreak havoc with global supply chains — the island is a major supply of semiconductors, an essential component of nearly all modern electronics, from smartphones to kitchen appliances and cars.

It would also provoke outrage from the West, deepening China’s isolation, bring Beijing and Washington closer than ever to direct military confrontation, and snuff out Taiwan’s hard-earned democratic freedoms.

– Zero Covid –

Xi will also need to decide the future of China’s strict zero-Covid policy — and whether the country is now ready to open up to the outside world after two years of closed borders and strict quarantines.

The policy is dragging on the economy, with officials this week blaming the epidemic for rising unemployment.

“Consumption is unlikely to recover to pre-Covid level with the current scale of Covid control,” said Dan Wang, chief economist at Hang Seng Bank China.

And with Covid rules in China’s semi-autonomous territory of Hong Kong slowly being relaxed in a bid to attract more international capital, Xi could decide the economic costs outweigh the benefits of keeping controls tight.

But the Chinese leader’s speech to the party faithful last week gave no sign that the rigid policy — which has forced millions into lockdowns over just handfuls of cases as the rest of the world learns to live with the virus — would relent anytime soon. 

And with the success of the zero-Covid policy so entwined with Xi’s legitimacy, it appears unlikely that a relaxation will take place anytime soon — no matter the cost to the economy. 

– Human rights –

China under Xi has seen the almost-total eradication of civil society, with scores of activists having fled the country and opposition to the government all but snuffed out. 

And in the far-western region of Xinjiang, rights groups say more than a million Uyghurs and other Muslim minorities are detained in what the United States and lawmakers in Western countries have said amounts to genocide.

The situation looks unlikely to improve under the next five years as Xi’s power grows increasingly impossible to challenge and the leadership digs in its heels against international pressure.

Xi’s next term will likely see him “continue his profound assault on human rights across the country and around the globe,” Sophie Richardson at Human Rights Watch wrote. 

China’s economy grew at a faster pace than forecast in the third quarter, official data showed Monday, but investors reacted with alarm to President Xi Jinping’s sweeping new powers over the ruling Communist Party.

Xi as expected secured a third term as leader at a party Congress over the weekend, but surprised observers with his complete stacking of other leadership positions with proteges and allies. 

After delaying the release of economic data last week so it would not conflict with the Congress, the government announced Monday the economy grew 3.9 percent year-on-year in the third quarter.

China had been expected to announce some of its weakest quarterly growth figures since 2020, with the world’s second-biggest economy hobbled by Covid restrictions and a real estate crisis.

But investors instead focused on the political developments, which raised fears Xi and his allies would continue with gruelling Covid lockdowns and other policies that have punished the economy.

The currency of the world’s second-largest economy slumped and the country’s stocks nosedived in Hong Kong to their lowest level since the global financial crisis.

On Monday the onshore yuan dipped as much as 0.4 percent to 7.2552 per dollar — its weakest since January 2008 — and the Hang Seng China Enterprises Index, a gauge of Chinese stocks listed in Hong Kong, plunged more than 5 percent.

That put it on track for the worst showing after any Communist Party Congress since the start of the index in 1994.

“The market is concerned that with so many Xi supporters elected, Xi’s unfettered ability to enact policies that are not market friendly is now cemented,” said Justin Tang, head of Asian research at United First Partners.

One of the most pressing concerns is Xi’s zero-Covid policy, which continues to see tens of millions of people endure rolling lockdowns that also shutter factories. 

China is the last of the world’s major economies to continue following the strategy.  

“There is no clear sign of a significant easing of the zero-Covid strategy,” Nomura’s Ting Lu said, noting that, if anything, the opposite had happened. 

In a speech to close the Congress on Saturday, Xi insisted his zero-Covid policy had been a success. 

And he promoted Li Qiang, the architect of a two-month lockdown in Shanghai that crippled the financial hub’s economy, to the second most powerful post in the Communist Party.

Tech firms were among the worst hit in Monday’s sell-off, having been hammered in recent years by Xi’s crackdown on the sector that has scythed firms’ profits and wiped billions off their valuations.

E-commerce giants Alibaba and JD.com tanked more than 10 percent each, while Tencent lost more than eight percent. 

China is also battling an unprecedented crisis in its real estate sector — which makes up more than a quarter of the country’s GDP when combined with construction. 

Following years of explosive growth fuelled by easy access to loans, Xi oversaw a crackdown on excessive debt that began in 2020.

Property sales are now falling across the country, leaving many developers struggling and some owners refusing to pay their mortgages for unfinished homes.

Still, the economic data released on Monday gave some cause for optimism.

The third-quarter growth was higher than the 2.5 percent predicted by a panel of experts surveyed by AFP.

“Many economic indicators have actually recovered reasonably well from the mass lockdowns of March and April,” according to analyst Thomas Gatley of Gavekal Dragonomics.

Car sales held strong in September, driven by strong demand for electric clean vehicles.

August exports increased 7.1 percent compared with the previous year, and Beijing has invested in infrastructure to support activity.

In the second quarter of the year, growth had collapsed to 0.4 percent on-year, the worst performance since 2020. 

The country posted 4.8 percent growth in the first quarter of 2022.

Many economists continue to think China will struggle to attain its 2022 growth target of around 5.5 percent, and the International Monetary Fund has lowered its GDP growth forecast to 3.2 percent for 2022 and 4.4 percent for next year.

— Bloomberg News contributed to this story —

Most Asian markets rose Monday after a surge on Wall Street fuelled by hopes the Federal Reserve could begin to slow its pace of interest rate hikes.

However, the bright start to the week was overshadowed by a plunge in Hong Kong and Shanghai after Xi Jinping was handed a third term as leader and put in place a team who back his economically damaging zero-Covid strategy.

The yen fluctuated against the dollar as speculation swirled that Japanese authorities had stepped into forex markets again to support their currency for a second time in as many sessions.

Tokyo, Sydney, Seoul and Taipei led gains after a strong performance in New York that was sparked by a report the Fed could begin to take its foot off the pedal in its rate hike campaign.

The Wall Street Journal article said some officials were keen to discuss a slowdown when they meet next month.

Markets have been hammered this year by fears that moves by the Fed and other central banks to fight decades-high inflation will spark a recession.

Officials had been expected to lift rates 75 basis points for a fourth successive time next month, while bets were increasing on another such move in December.

“The mere suggestion of the Fed stepping down from 75 basis points to a 50 basis point incremental rate hike in December produced a fierce rally in US equities, partial reversal of the recent surge in US Treasury yields and smart about-turn in the US dollar,” said National Australia Bank’s Ray Attrill.

However, while most equity markets across the region were well up, Chinese markets were being hammered by the reshuffle at the top of government. Hong Kong shed more than four percent and Shanghai almost one percent.

-Zero-Covid worries-

Xi, who was at the weekend given a third five-year term as leader, handed key positions to loyalists who back his strategy of fighting Covid outbreaks with lockdowns and other strict measures.

The policy has been blamed for the sharp drop in growth in the world’s number two economy, and while data showed Monday that it expanded more than forecast in the third quarter, traders remain on edge.

On currency markets, the yen was hovering around 149 to the dollar, having strengthened to 145.65 earlier amid talk that authorities had intervened to support the unit for a second time in as many sessions.

Observers said officials likely stepped in on Friday after the dollar soared to a fresh 32-year high of 151.93 yen. That came after warnings from the finance ministry that it was keeping tabs on movements, and follows a similar move last month.

“Whilst the (finance ministry) has since declined to comment on whether they intervened, such action has not come without multiple warnings from officials,” said Matt Simpson at City Index.

“The MoF last week said they will deal with speculators ‘severely’ and the strong price reaction on Friday suggests they did just that.

“Price action has also been erratic in Monday’s Asian session, which points to another probable intervention.”

The pound rose after former UK prime minister Boris Johnson said he would not stand for the Conservative leadership again, after the resignation of Liz Truss last week.

His decision leaves his former finance minister Rishi Sunak the favourite to take the reins and become the country’s third premier this year.

The choice of the less-controversial Sunak could provide a little stability in Westminster after weeks of turmoil sparked by Truss’s debt-fuelled mini-budget that hammered the pound and sent shivers through markets.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: UP 1.0 percent at 27,156.95 (break)

Hong Kong – Hang Seng Index: DOWN 4.4 percent at 15,497.13

Shanghai – Composite: DOWN 0.9 percent at 3,010.37

Pound/dollar: UP at $1.1318 from $1.1258 on Friday

Dollar/yen: UP at 148.92 yen from 147.65 yen

Euro/dollar: DOWN at $0.9840 from $0.9863

Euro/pound: DOWN at 86.93 pence from 87.26 pence

West Texas Intermediate: FLAT at $85.05 per barrel

Brent North Sea crude: FLAT at $93.47 per barrel

New York – Dow: UP 2.5 percent at 31,082.56 (close)

London – FTSE 100: UP 0.4 percent at 6,969.73 (close)