Asia report: Stocks mixed as RBNZ delivers biggest-ever rate hike

Stock markets were mixed in the Asia-Pacific region on Wednesday, after New Zealand’s central bank delivered the biggest interest rate hike in its history.

In Japan, traders had the day off for the country’s Labor Thanksgiving Day holiday, as the yen weakened 0.19% against the dollar to last trade at JPY 141.50.

On the mainland, the Shanghai Composite was up 0.26% at 3,096.91, and the technology-heavy Shenzhen Component was 0.27% weaker at 10,972.81.

South Korea’s Kospi was 0.53% firmer at 2,418.01, while the Hang Seng Index in Hong Kong rose 0.57% to 17,523.81.

Video game-related technology plays were in the green in the special administrative region, with NetEase up 2.46% and Tencent Holdings 1.66% firmer.

The moves came after a report published overnight suggested China had “achieved a step toward resolution” in the ongoing controversy around youth gaming addiction.

According to the China Game Industry Group Committee and research firm CNG, both NetEase and Tencent were taking positive steps in a bid to keep young gamers safe.

The blue-chip tech stocks were mixed in Seoul, with Samsung Electronics up 0.66%, while SK Hynix was flat.

Oil prices were in the red at the end of the Asian day, with Brent crude futures last down 3.09% on ICE at $85.63 per barrel, and the NYMEX quote for West Texas Intermediate off 2.77% at $78.71.

“Asian markets [were] generally positive, despite some concerning Covid-19 developments in China,” said Interactive Investor head of markets Richard Hunter of the situation on Wednesday morning.

“The authorities are tilting towards a reiteration of another tight lockdown policy after the first deaths in the mainland were reported at the weekend and with case numbers still steadily rising.

“Some of the more recent market optimism has therefore been unwound as the country remains unable to stage its much-awaited economic recovery, with closures of some export and manufacturing hubs adding to the unease.”

In Australia, the S&P/ASX 200 closed up 0.7% to 7,231.80, as the hefty financials subindex added 0.71% by the end of trading in Sydney.

The country’s big four banks were all in the green, with Australia and New Zealand Banking Group up 0.24%, Commonwealth Bank ahead 0.32%, National Australia Bank 1.07% firmer, and Westpac Banking Corporation gaining 0.58%.

Across the Tasman Sea, New Zealand’s S&P/NZX 50 lost 0.85% to 11,323.80, after the country’s central bank delivered its biggest-ever rate hike, tacking 75 basis points onto the official cash rate to take it to 4.25%.

The Reserve Bank of New Zealand slashed the rate to a record low of 0.25% from 1% at the beginning of the Covid-19 pandemic in March 2020, and has progressively raised it in each of its last eight scheduled policy decisions since October last year.

It was now at its highest level since January 2009, when the Reserve Bank cut the official cash rate to 3.5% from 5% in the wake of the 2008 global financial crisis.

In his post-decision press conference, the central bank’s governor Adrian Orr said its only target was to move the official cash rate to a level that would see inflation come down.

“Our core inflation rate is too high,” Orr told the media, adding that the RBNZ was “well down the path of the tightening cycle”.

In a separate press release, the RBNZ said members of its policy committee agreed that further tightening was still needed.

Alex Loo, macro strategist at TD Securities, added that the central bank managed to surpass hawkish expectations through its forecast of a rate peak of 5.5% in the second quarter of 2023 - a “whopping” 140 basis points higher than its previous 4.1%.

Loo added that despite the forecast for the rate to remain at 5.5% through 2023 and well into mid-2024, it only expected a "shallow recession".

“The Bank may be underestimating the possibility of a more severe contraction in economic activity,” he noted.

“Nevertheless, the Bank is not backing down, signalling that higher interest rates are necessary and an eagerness to quickly reach the OCR peak.”

Thus, Loo said the RBNZ was likely leaning towards a 75-basis point hike at its February meeting, contrary to TD’s call for a 50-basis point hike.

“However, we get two key data prints before the February meeting - the fourth quarter inflation and labour reports.

“Given that the Bank appears to be reactive to data related to its remit - labour and inflation - a downside miss may nudge the committee to opt for a 50-basis point hike instead.”

The down under dollars were mixed against the greenback, with the Aussie last 0.15% weaker at AUD 1.5063, while the Kiwi strengthened 0.18% in the wake of the RBNZ’s rate decision to last trade at NZD 1.6222.

Reporting by Josh White for Sharecast.com.