China's first Covid death in six months has revived fears of more strict, economy-sapping containment measures

Hong Kong (AFP) - Asian markets fell Monday as China’s first Covid death in six months sparked fears officials would reimpose strict, economically painful restrictions to fight outbreaks across the country.

The news threw a spanner in the works for investors who had grown hopeful of a gradual reopening after Beijing eased a number of virus-fighting measures earlier this month.

The death of an 87-year-old man in Beijing on Sunday came as infections across the country spiked, testing authorities’ plans to loosen their grip by lowering quarantine times for foreigners and cancelling mass tests.

Beijing has in recent days moved to confine some residents to their homes and ordered others to quarantine centres.

The measures dealt a particular blow to Hong Kong’s Hang Seng, which fell more than two percent, extending a sell-off at the end of last week and eating further into a recent massive rally. Shanghai was down.

“It feels like one step forward, two steps back,” Willer Chen, at Forsyth Barr Asia, said.

“It is super hard to reopen in the short term given winter is coming and cases are at a super high level and spreading across the whole country.”

There were also losses in Tokyo, Sydney, Seoul, Singapore, Taipei and Manila. Kuala Lumpur dropped with the ringgit after Malaysian elections ended with no clear winner, fuelling uncertainty in the country.

Regional investors brushed off a positive end to last week for US and European markets, while attention turns to the release later in the week of minutes from the Federal Reserve’s most recent policy meeting.

Global markets have enjoyed a broadly healthy November thanks to signs of China easing and indications of slowing US inflation that fanned optimism the Fed would start to slow its pace of interest rate hikes.

The well-below-forecast readings in the consumer and wholesale indexes suggested months of strict tightening measures were finally working through the economy and having results, allowing for a less hawkish Fed.

But several officials soon lined up to warn that more needed to be done to get inflation back down from four-decade highs to more bearable levels.

The sharp rise in interest rates and elevated inflation has this year sent shudders through trading floors as investors fear they will send the US economy into recession.

In the latest comments, Atlanta Fed chief Raphael Bostic said he saw borrowing costs hitting five percent – from their current levels of around four percent – before they are held.

Boston Fed president Susan Collins remained open to options for the next hike – including a fifth straight 75-basis-point lift.

However, National Australia Bank’s Tapas Strickland said: “That comment by itself sounds hawkish, but Collins overall was more cautious and also expressed confidence that policymakers can tame inflation without doing too much damage to employment.

“Instead, it was likely that comment coming after a bevy of Fed Speakers during the week that added a hawkish hue to it.”

While the mood among traders remains less than bright, there appears to be a feeling that there is some light at the end of the tunnel.

“Whether it’s the time of year or recession uncertainty, few seem inclined to chase the risk rally,” said Stephen Innes at SPI Asset Management.

“Still, there is growing recognition that the consensus view of recession and earnings downgrades could face mitigation from declining inflation.

“A lower dollar, lower volatility and the acknowledgement of having to buy early could improve the risk outlook.”

And Bokeh Capital Partners’ Kim Forrest added that 10-year Treasury yields had tumbled since late October, showing “a softening inflationary environment”.

“The bond market is a little bit smarter about what the Fed needs to do and what it’s going to do. It’s been telling us that the Fed probably won’t be able to get its rates up to five percent nor will it need to,” she told Bloomberg Television.

Demand concerns caused by China’s Covid woes further hit oil prices, with both main contracts in the red, having tumbled last week.

- Key figures around 0230 GMT -

Tokyo - Nikkei 225: DOWN 0.1 percent at 27,871.09 (break)

Hong Kong - Hang Seng Index: DOWN 2.8 percent at 17,492.08

Shanghai - Composite: DOWN 1.0 percent at 3,066.47

Pound/dollar: DOWN at $1.1843 from $1.1883 on Friday

Euro/dollar: DOWN at $1.0292 from $1.0321

Dollar/yen: UP at 140.42 yen from 140.40 yen

Euro/pound: UP at 86.91 from 86.83 pence

West Texas Intermediate: DOWN 0.7 percent at $79.55 per barrel

Brent North Sea crude: DOWN 0.8 percent at $86.92 per barrel

New York - Dow: UP 0.6 percent at 33,745.69 (close)

London - FTSE 100: UP 0.5 percent at 7,385.52 (close)

– Bloomberg News contributed to this story –