SYDNEY: Asian shares extended their rally on Monday (Dec 5) as investors hoped steps to unwind pandemic restrictions in China would eventually brighten the outlook for global growth and commodity demand, nudging the dollar down against the yuan.
The news helped oil prices firm as OPEC+ nations reaffirmed their output targets ahead of a European Union ban and price caps on Russian crude, which begin on Monday.
More Chinese cities announced an easing of COVID-19 curbs on Sunday as Beijing tries to make its zero-COVID policy less onerous after recent unprecedented protests against restrictions.
There were also reports Beijing might lower the threat classification for COVID-19.
"While the easing of some restrictions does not equate to a wholesale shift away from the dynamic COVID zero strategy just yet, it is further evidence of a shifting approach and financial markets look to be firmly focussed on the longer-term outlook over the near-term hit to activity as virus cases look set to continue," said Taylor Nugent, an economist at NAB.
Chinese blue chips gained 1.1 per cent, on top of last week's 2.5 per cent bounce.
MSCI's broadest index of Asia-Pacific shares outside Japan added 1.2 per cent, after rallying 3.7 per cent last week to a three-month top. Japan's Nikkei edged up 0.2 per cent, while South Korea gained 0.3 per cent.
EUROSTOXX 50 futures added 0.1 per cent, while FTSE futures were flat. S&P 500 futures and Nasdaq futures both fell 0.1 per cent.
Wall Street had lost some momentum on Friday after November's robust US payrolls report challenged hopes for a less aggressive Federal Reserve, though Treasuries still ended last week with solid gains.
Indeed, 10-year note yields have fallen 74 basis points since early November, effectively undoing much of the tightening of the Fed's last outsized increase in cash rates.
Markets are wagering Fed rates will top out at 5 per cent and the European Central Bank around 2.5 per cent.
"But US and Euro area labour demand remain surprisingly strong, and alongside a recent easing in financial conditions, the risks are shifting toward higher-than-anticipated terminal rates for both the Fed and the ECB," warns Bruce Kasman, head of economic research at JPMorgan.
"The combination of labour market resilience with sticky wage inflation adds to the risk that the Fed will deliver a higher than 5 per cent rate forecast at its upcoming meeting and that Chair Jerome Powell's press conference will shift to more open-ended guidance regarding any near-term ceiling on rates."
The Fed meets on Dec 14 and the ECB the day after. Speaking on Sunday, French central bank chief Francois Villeroy de Galhau said he favoured a hike of half a point next week.
Central banks in Australia, Canada and India are all expected to raise their rates at meetings this week.
The steep decline in US yields has taken a toll on the dollar, which fell 1.4 per cent last week on a basket of currencies to its lowest since June.
It lost 3.5 per cent on the yen alone and last traded at 134.24, leaving October's peak of 151.94 a distant memory. The euro resumed it rise to $US1.06, having added 1.3 per cent last week to its highest since early July.
The dollar also slipped under 7.0 yuan in offshore trade to hit the lowest in three months at 6.97.
The drop in the dollar and yields has been a boon for gold, which was up 0.5 per cent at a four-month peak of US$1,806 an ounce after rising 2.3 per cent last week.
Oil prices bounced after OPEC+ agreed to stick to its oil output targets at a meeting on Sunday.
The Group of Seven and European Union states are due on Monday to impose a US$60 per barrel price cap on Russian seaborne oil, though it was not yet clear what impact this would have on global supply and prices.
Brent gained US$1.67 to US$87.24 a barrel, while US crude rose US$1.46 to US$81.44 per barrel.