A global equities rally extended into Asia on Tuesday as promising results from a Covid-19 vaccine trial boosted confidence in an economic recovery from the pandemic, though Chinese shares were damped by inflation data that suggested weakening consumer demand.

The announcement by US drugmaker Pfizer and Germany’s BioNTech that their vaccine was more than 90 per cent effective in late-stage trials helped send Tokyo’s Topix up 1.4 per cent on Tuesday morning and boosted Australia’s S&P/ASX 200 by 1.5 per cent. Hong Kong’s Hang Seng rose 1.8 per cent.

The news added a tailwind to markets already buoyed by optimism over the prospects of further US stimulus following Joe Biden’s presidential election victory.

“This offers a ray of hope that the market did not hesitate to take advantage of,” said Tai Hui, chief Asia market strategist at JPMorgan Asset Management. Investor reaction “is in line with our expectations of what would happen if there are signals that some normality can return to our lives”, he added.

Mr Hui said a successful vaccine deployment would accelerate a global economic recovery and ease concerns for hard-hit industries including aviation, travel and energy.

But China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks slid 0.2 per cent following data showing consumer prices rose at their slowest pace in more than a decade in October — with non-food inflation ceasing altogether. The figures suggested weakness in the world’s second-largest economy, which has broadly led the global recovery from the pandemic.

Frank Benzimra, head of Asia equity strategy at Société Générale, said the fall in Chinese stocks was also partly a knee-jerk reaction to the vaccine news as rival exporters now stood a better chance of getting back up to full capacity within 12 months.

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“Does it mean the end of the China [stocks] story? Absolutely not,” he said. “It’s a short term reaction . . . from an equities point of view the fundamentals of the Chinese market are still very good.”

The broader Asia rally followed a strong showing on Wall Street, where the S&P 500 finished up 1.2 per cent after rising as much as 3.9 per cent to a record intraday high. The Russell 2000 of small-cap stocks, viewed as a proxy for the US economy, jumped 3.7 per cent.

The Nasdaq Composite, which includes many tech stocks that have benefited from the shift to working from home, fell 1.5 per cent.

Futures contracts tipped a slight gain of 0.1 per cent for the S&P 500 when Wall Street opens on Tuesday, while the UK’s FTSE 100 was expected to drop 0.9 per cent.

Analysts warned that a global vaccine remains distant, and noted cases have continued to surge in the US, where investor unease has also been stoked by incumbent president Donald Trump’s refusal to concede the election and efforts to challenge Mr Biden’s victory.

In Japan, the Nikkei 225 Average surged 1.5 per cent in early trading, rising above 25,000 for the first time in almost three decades. The benchmark index, favoured by retail investors and comprising some of the country’s best-known blue-chips, was propelled to its highest level since June 1991 by a sharp slide in the yen against the US dollar.

Nomura FX strategist Yujiro Goto attributed the yen’s rapid weakening to ¥105 level versus the dollar, following steady gains ahead of the US election that took it to a high ¥103, to both a general “risk on” turn in global markets as well as the yen’s sensitivity to the rate spread with US 10-year Treasuries.

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The rally in stocks drew funds out of sovereign debt as investor appetite for risk returned, pushing up yields, which rise as bond prices fall. The yield on the 10-year Australian government bond rose 0.13 percentage points, while that on equivalent US Treasuries steadied at 0.908 per cent after rising 0.11 percentage points overnight.

Oil prices pulled back from overnight gains with Brent crude, the international benchmark, down 1.3 per cent at $41.84 a barrel in Asia on Tuesday after shooting up 7.5 per cent overnight.

Gold was also higher in Asia trading, rising 0.5 per cent to $1,870.66 an ounce after falling 4.5 per cent on Monday.

Via Financial Times