A woman walks past an electronic billboard displaying the Hang Seng Index figure in Hong Kong - JEROME FAVRE/EPA-EFE/Shutterstock

A woman walks past an electronic billboard displaying the Hang Seng Index figure in Hong Kong – JEROME FAVRE/EPA-EFE/Shutterstock

Hong Kong and Shanghai stocks saw big swings on Tuesday following the previous day’s rout after Xi Jinping tightened his grip on power in China, while other Asian markets extended gains on hopes the Federal Reserve will slow down its pace of rate hikes.

Optimism about upcoming corporate earnings was also providing support, with Wall Street chalking up another strong day ahead of reports this week from big-name firms including Apple, Amazon and Microsoft.

Investors were keeping a wary eye on developments in China after Mr Xi at the weekend was handed another five-year term as leader and gave top jobs to a number of loyalists who back his strict zero-Covid strategy.

The policy of lockdowns and other strict measures has been a major cause of the country’s economic woes and the prospect of more upheaval has sent chills through trading floors.

The uncertainty resulted in a drop of more than 6pc in Hong Kong on Monday, with tech firms – which have been hardest hit by Mr Xi’s crackdown on a range of private-sector companies – taking the brunt of it.

And the selling spread to New York later in the day, with the Nasdaq Golden Dragon China Index of 65 Chinese stocks diving 14pc – its biggest fall on record – wiping more than $90 billion off their market value.

Alibaba, JD.com and Tencent all saw double-digit losses, matching the selling earlier in Hong Kong.

Any hopes for a bounce from bargain-buying on Tuesday appeared to be short-lived with wild fluctuations in the city seeing the Hang Seng Index swing from gains to losses.

Shanghai struggled to get out of negative territory, while the onshore yuan sank to its weakest level since 2007 and the offshore yuan hit a record low.

The pound was sitting around $1.13 as the choice of former chancellor Rishi Sunak as Britain’s next prime minister provided a sense of stability after weeks of uncertainty caused by former leader Liz Truss’s controversial debt-fuelled budget.

Follow the latest updates below.

05:19 AM

Good morning.

Rishi Sunak’s economic approach will lead to a deeper recession than previously thought but will keep a lid on interest rates, according to a top City economist. Thomas Pugh at RSM said the new prime minister’s pledge for fiscal responsibility suggests the country could be facing a fresh wave of austerity.

Combined with the cost-of-living crisis and rising rates, this could lead to a recession deeper than the 2pc previously forecast, he said. However, lower fiscal spending is likely to keep down inflation in the medium term, meaning the Bank of England won’t need to raise interest rates as aggressively.

5 things to start your day

1) Gas prices drop to lowest level since June as hopes grow of mild winter – Fall is likely to boost public finances by reducing cost of energy bailouts

2) Britain is ‘doomed’ and will need IMF bailout, says billionaire investor Guy Hands – Terra Firma founder says UK is on the path to becoming a ‘sick man of Europe’

3) Surging inflation triggers biggest wave of profit warnings since financial crisis – Public companies struggling to stay afloat as City watchdog investigates impact of market turmoil on private equity

4) Paris dims the lights as blackouts threaten disaster for Macron – Years of underinvestment in its aging nuclear fleet risk causing chaos in France this winter

5) Manufacturing costs drop as supply chain chaos subsides – Consumer demand is rapidly cooling as global economies head into recession

What happened overnight

Asian equities fell to new two-and-a-half-year lows on Tuesday as early gains inspired by a rally on Wall Street on hopes the Federal Reserve could be nearing the end of aggressive rate increases were offset by weakness in Chinese shares and the yuan.

The US dollar eased against major peers, while sterling took aim at this month’s highs after Rishi Sunak was set to become Britain’s next prime minister.

Sterling strengthened 0.3pc to $1.13170, heading towards the high this month of $1.1493 from October 5.

Equities were mixed in Asia, with Japan’s advancing 0.7pc and South Korea rising 0.3pc but Taiwan was down 0.7pc and Hong Kong shed 0.6pc.

MSCI’s broadest index of Asia-Pacific shares lost 0.4pc to 428.2 after dipping to 427.4, the lowest since April 2020.