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China Lifts Quarantine Restriction; Stocks Rise; USD Falls

China’s decision to end quarantine measures for foreign visitors on Tuesday boosted global stock markets and weakened the U.S. dollar, which had been in place for the last three years as part of an effort to contain the spread of the deadly COVID-19 virus.

The National Health Commission said on Monday that China will no longer need quarantine for incoming tourists as of January 8. Furthermore, when COVID-19 becomes less virulent and more like other respiratory infections, its significance will decrease.

MSCI’s broadest index of Asia-Pacific equities outside of Japan was up 0.5% as of early Tuesday afternoon Hong Kong time. The benchmark index in China gained 1.1%.

By midday on Monday, the Nikkei share average in Japan was up 0.3%, having given up some early gains that had lifted the index to its highest level in a week, aided by merchants’ optimism for the return of big-spending Chinese visitors as Takashimaya raised its profit projection.

The S&P 500 e-minis, which predict the performance of the S&P 500 index, rose 0.6% overnight, pointing to a bullish market opening for traders on Tuesday as they return from the Christmas break.

Asian markets, including Hong Kong and Australia, are closed on Tuesday.

According to Chaoping Zhu, a global market analyst at JPMorgan Asset Management, the most recent policy decision from China was encouraging for investors since it suggested economic activity in most large cities may return to normal relatively fast.

He said that there was risk of a prolonged epidemic continuing and dragging on the economy, but that outcomes generally have been better than predicted, and that most Chinese cities might recover from the initial wave of the new COVID-19 outbreak by January.

He said that with China’s openness comes the return of Chinese visitors, which would boost the overseas consumer and service industries, especially in Southeast Asia.

Zhu added, citing internal data, that by November, inbound tourism to several ASEAN nations had recovered by 60% to 70%, but there is still a gap between now and 2019 before the epidemic.

“The void will be filled by visitors from China. One may say that this is the last element, “His words.

As a consequence, most developing Asian currencies climbed on Tuesday as risk appetite increased after China lifted its quarantine restriction, pushing the dollar down.

The biggest significant increase was seen in the South Korean won, which rose by 0.7% to a new high not seen since June 10.

Australian and New Zealand dollars also rose.

In light year-end trade, the New Zealand dollar rose 0.3% to $0.6288 while the Australian dollar rose 0.1% to $0.67395. Both are widely accepted as liquid alternatives to the Chinese yuan.

On Tuesday, oil prices inched higher despite little trading on worries that logistics and production of petroleum products and shale oil were being disrupted by winter storms throughout the United States. … more

Both Brent crude (at $84.42) and U.S. West Texas Intermediate (at $80.04) were up 0.6%.

Starting this coming Friday, trading in U.S. Treasuries will once again be open for business. Last week saw the highest close of the benchmark 10-year yield over 3.75% since early April.

Although inflationary pressure is easing, as shown by Friday’s release of the Personal Consumption Expenditures (PCE) price index, Federal Reserve policymakers are still wary of the robustness of the labor market and the persistence of service sector and wage inflation, which could impede the central bank’s efforts.

The labor market is expected to continue adding positions in the early months of 2023 while already being highly tight, putting additional upward pressure on salaries and non-shelter service costs, according to a forecast published by Citi analysts on Friday.