Asia stocks struggle as Xi's leadership team spooks markets By Reuters

By Anshuman Daga

SINGAPORE (Reuters) - Asian equities wallowed around lows hit early in the pandemic on FXCM account opening appTuesday, while slumped to a nearly 15-year trough as investors were rattled by President Xi Jinping's growing power.

U.S. and European futures were flat as investors awaited corporate earnings from heavyweights including Alphabet (NASDAQ:) and Microsoft (NASDAQ:).

MSCI's broadest index of Asia-Pacific shares fell to the lowest since April 2020 before an attempted rebound in beaten-down Hong Kong tech shares dragged it back to flat.

The Tech index was up 3% in the afternoon, but after falling nearly 10% on Monday and being down almost 50% this year it was cold comfort for investors.

"A short-term technical rebound is the main factor for today's rise," said Kenny Ng, a strategist at China Everbright (OTC:) Securities in Hong Kong. "(The) cumulative decline of Hong Kong stocks is deep."

rose 1%. ()

Elsewhere the dollar was a fraction weaker - with the euro firm ahead of an expected European Central Bank rate hike later this week - and sterling finding some support from a hope that incoming Prime Minister Rishi Sunak brings stability. [FRX/]

Gilts had jumped on Monday after Sunak cruised to victory in the Conservative Party leadership race. He will become Britain's first prime minister of colour on Tuesday and challenges lie ahead for its youngest leader in modern times.

"While the premium associated with September's reckless fiscal policy actions may have been removed, that does not take us back to a neutral view on sterling," said RBC Capital Markets' chief currency strategist Adam Cole.

"The UK's structural imbalances existed before those policy changes and they are still a longer-term concern."

Sterling was last up 0.2% to $1.1302. The euro held at $0.9875, and after two days of being whacked lower by probable intervention the dollar was steady at 148.92 Japanese yen - not far below Friday's highs.

Treasuries were broadly steady with the benchmark yield on 10-year U.S. government debt at 4.2047%. The Fed Funds rate is expected to peak at 4.50%-4.75% or higher in Q1 2023, according to 49 of 80 economists in a Reuters poll.

CHINA FLIGHT

Chinese markets remained volatile and jittery following Monday's withering selloff in Hong Kong. Xi Jinping's new leadership team has raised worries that China will increasingly prioritise the state at the cost of the private sector.

China's yuan fell about 0.6% to 7.3090 on Tuesday and mainland stocks struggled to hold steady. The Hang Seng was last 0.1% lower and there are signs that weakness in the yuan and China's outlook are rippling across Asia.[EMRG/FRX]

"Conflict between Beijing's security and economic (growth) objectives have been rendered starker," said Vishnu Varathan, head of economics at Mizuho Bank in Singapore.

"A clean sweep of the Politburo Standing Committee by Xi loyalists, and a conspicuous absence of technocrats likely to be more focussed on firing up the economy, suggests that economic revival policies may be subordinated."

South Korea's won hit a 13-year low on Tuesday. Indonesia's hitherto resilient rupiah has hit the skids and even the second 100 basis point rate hike in a month is struggling to contain a slide in the Vietnamese dong.

Later in the day tech giants Microsoft and Alphabet report results along with some bellwether firms such as General Motors (NYSE:), UPS, (NYSE:) and Coca-Cola (NYSE:).

The European Central Bank meets this week and is widely expected to raise rates by 75 basis points. In commodities markets, gold prices were flat at $1,648 per ounce, while benchmark futures were steady at $93.20 per barrel.

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