Stocks Rise as China Reopening Offsets Rate Fears: Markets Wrap

(Bloomberg) — Stocks in Europe gained along with US equity futures Monday as Beijing further eased Covid restrictions, helping soothe a fragile mood amid inflation and rate-hike concerns. Treasuries and the dollar slipped.

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Basic resources led gains in the Stoxx Europe 600 index as copper surged to its highest since April, with sentiment across industrial metals bolstered by China’s gradual reopening. The UK benchmark climbed more than 1% as traders returned after a four-day break.

Futures on Nasdaq 100 jumped 1.4% after the Wall Street Journal reported that Chinese regulators are set to ease curbs on ride-hailing giant Didi Global Inc. and two other US-listed tech firms. Didi’s shares soared as much as 52% in premarket trading. Contracts on the S&P 500 also rose, signaling a firmer open for US stocks after last week’s declines.

Stronger-than-forecast US hiring data for May suggested the Federal Reserve won’t waver from its tightening path to rein in price pressures. But Goldman Sachs Group Inc. economists said the Fed may be able to pull off its aggressive rate-hike plan without tipping the country into recession. The easing of Chinese lockdowns will help abate supply-chain pressures, said Diana Mousina, a senior economist at AMP Capital.

“Positive news around Chinese economic activity and cheaper equity valuations could offer value from a long-term investment perspective, but volatility will remain high in the short-term,” Mousina said in a note.

Brent crude oil held above $120 a barrel after Saudi Arabia signaled confidence in demand with a larger-than-expected price increase in Asia. Meanwhile, the US was said to be considering allowing more sanctioned Iranian oil onto global markets to counter the decline in Russian supplies.

The US jobs report quelled some concern that the world’s biggest economy is slowing too sharply, but also strengthened the view that the Fed will keep hiking rates to combat inflation. Cleveland Fed President Loretta Mester said she would back a half-point hike in September if inflation isn’t retreating. Market-derived odds for a third 50-basis-point increase in September are about 85%.

The European Central Bank is set to announce an end to bond purchases this week and formally begin the countdown to an increase in borrowing costs in July, joining global peers tightening monetary policy in the face of hot inflation. The central bank is set to strengthen its commitment to support vulnerable euro-area debt markets if they are hit by a selloff, Financial Times reported.

Read: Team Transitory Is Back Warning Big Rate Hikes Are a Big Mistake

“Liquidity is going out of the market and what that means is it will have an impact on the equity markets,” Charu Chanana, Saxo Capital Markets market strategist, said on Bloomberg Television. “We do expect that the drawdown in the equity markets still has some room to go.”

Elsewhere, the pound gained and gilts fell as traders shrugged off risks around a confidence vote on British Prime Minister Boris Johnson’s leadership.

Tech stocks and crypto are vulnerable in the era of quantitative tightening, our latest MLIV Pulse survey shows. Read more here.

Key events to watch this week:

  • Reserve Bank of Australia policy decision Tuesday

  • World Bank’s “Global Economic Prospects” report Tuesday

  • Reserve Bank of India rate decision Wednesday

  • OECD Economic Outlook, a twice-yearly analysis of major global economic trends and prospects for the next two years. Wednesday

  • European Central Bank rate decision, Christine Lagarde briefing, Thursday

  • China trade, new yuan loans, money supply, aggregate financing. Thursday

  • US CPI, University of Michigan consumer sentiment Friday

  • China CPI, PPI Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 rose 0.8% as of 9:11 a.m. London time

  • Futures on the S&P 500 rose 1.1%

  • Futures on the Nasdaq 100 rose 1.4%

  • Futures on the Dow Jones Industrial Average rose 0.8%

  • The MSCI Asia Pacific Index rose 0.6%

  • The MSCI Emerging Markets Index rose 0.9%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.2%

  • The euro rose 0.2% to $1.0745

  • The Japanese yen was little changed at 130.76 per dollar

  • The offshore yuan rose 0.1% to 6.6482 per dollar

  • The British pound rose 0.6% to $1.2559

Bonds

  • The yield on 10-year Treasuries advanced two basis points to 2.96%

  • Germany’s 10-year yield advanced one basis point to 1.28%

  • Britain’s 10-year yield advanced six basis points to 2.22%

Commodities

  • Brent crude rose 0.6% to $120.39 a barrel

  • Spot gold was little changed

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