Asia wrap: Calm in a sea of uncertainty

Markets

Chinese stock names rallied as local investors speculated that the calming in protests might hasten a shift away from Covid-Zero policies.

While investors took solace in the news that healthcare workers would prop up vaccinations for the elderly, a major reopening hurdle due to the surge in Covid on the ground, policymakers fell short of announcing any reopening blueprint or even hinting at bringing jab levels in line with neighbouring countries. So, suspicious Western eyes and local risk traders will invariably keep an eye on the never-ending loop of dictatorial Covid Zero curbs until something yields.

Currently, investors remain in a tug-of-war between fresh lockdowns and the possibility that the protests lead to a quicker move away from the zero Covid strategies, which, based on past global reopening performances, would prove highly supportive for local and offshore markets.

Forex 

After the hawkish Fed speakers overnight, concerns are developing amid two key risk events – so investors have started bracing for Jerome Powell's speech tomorrow and payrolls on Friday – which looks more likely than not to extend the higher for longer narrative rather than endorsing the current run of dovish mania. When adding the very inverted US yield curve, suggesting global recessionary storm clouds billowing on the horizon, it might be a bit premature to toss out those 2022-dollar playbooks as dollar recovery may be on the cards this week.

Oil

Despite the cloudy situation on the Mainland, we continue to see the upside risks for oil prices into the new year as the persistently low inventory buffers suggest crude stocks are unlikely to recover as the embargo sets in.

With OPEC likely to stick to the current production quota by drip-feeding supply more slowly than the recovery in demand, it could set up a better situation for Oil bulls in 2023. 

Suppose OPEC does cut supply in response to China's negative Covid loop. In that case, it could spark an outsized rally, much to the chagrin of Western allies who are on record of accusing Saudi Arabia of cohorts with Russia.