Asian markets fall as China COVID cases rise

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Asian markets fall as China COVID cases rise

A man wearing a protective mask walks past an electronic board displaying the coronaviruses COVID 19 outbreak, walking past a Russian Trading System RTS Index, which is empty, outside a brokerage in Tokyo.

SINGAPORE Reuters -- Asian share markets fell on Thursday as rising COVID cases in China unsettling investors who had been expecting the world's second biggest economy to gain steam after the relaxation of stringent COVID curbs.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 1.06%, and was set for a third week in a row of losses.

China's shares opened 0.4% lower, while Hong Kong's stock market fell 1%. Japan's Nikkei dropped by more than 1% to a nearly three month low, while Australia's resource heavy S&P ASX 200 index fell 1.18%.

The health system of China has been under a lot of stress since Beijing started dismantling its zero-COVID regime at the beginning of the month.

On Monday, China announced it would end quarantine requirements for inbound travelers on Jan. 8, and several countries, including Japan and the United States, have made COVID tests mandatory for travellers from China.

Nomura analysts said that there could be significant waves of infection across China, from urban to rural areas, during the nationwide travel rush for the Lunar New Year, which falls on January 22.

China may find itself in a difficult situation due to its procrastination on embracing a living with COVID approach, according to analysts, who said that the previous zero-COVID policy could have overprotected people, increasing the risk of a surge in infections once the controls were removed.

Concerns that central banks are trying to keep inflation low could lead to an economic downturn and uncertainty about how China's economy will fare after the removal of COVID controls.

Markets are pricing in 69% chance of a 25 basis point rate hike when the U.S. Federal ReserveFederal Reserve holds a policy review in February, and they are looking at U.S. rates peaking at 4.94% in the first half of next year.

The Fed raised interest rates by 50 bps earlier in December after it delivered four consecutive 75 bps hikes, but has said it may need to keep higher interest rates for longer.

The treasury yields in the U.S. have gone up as traders tried to assess the impact of China reopening its economy on the Fed's rate hike policy.

The yield on 10 year Treasury notes fell 2.2 basis points to 3.864%, not far from the six week high of 3.89% it hit in the previous session.

The yield on the 30 year Treasury bond was down 2.1 basis points to 3.956%. The two-year U.S. Treasury yield, which usually moves in line with interest rate expectations, was down 1 basis point at 4.349%.

In the commodities market, U.S. crude fell 0.52% to $78.55 per barrel, and Brent was at $82.84, down 0.5% on the day. Surging cases of COVID in China has raised doubts about a recovery in fuel demand in the world's second biggest oil consumer. O R Spot gold added 0.2% to $1,807. It was 98 an ounce. U.S. gold futures fell 0.17% to $1,805. An ounce is 80 an ounce.

The Japanese yen was up by 0.56% against the dollar at 133.70 per dollar, while sterling was last trading at $1.2044, up 0.26% on the day.

The dollar index, which measures the dollar against six major currencies, fell by 0.057%, with the euro up 0.19% to $1.0628.