Stocks Climb, Dollar Fades as China Turmoil Eases: Markets Wrap

(Bloomberg) — US equity futures pointed to a moderately stronger open on Wall Street as speculation mounted that unrest in Chinese cities over Covid restrictions would force authorities to move faster in loosening the curbs.

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While Beijing on Tuesday stopped short of announcing any concrete steps toward reopening the world’s second-largest economy, it pledged to bolster vaccination among its senior citizens, a move regarded as crucial to ending the loop of harsh Covid Zero curbs. A spokesman for the National Health Commission also said local officials must avoid excessive restrictions.

Futures for the tech-heavy Nasdaq rose 0.5%, with US-listed Chinese stocks in particular rallying in premarket trading. The exchange-traded KraneShares CSI China Internet Fund rose more than 6%, while internet stocks such as Alibaba Group Holding Ltd. and JD.com were higher after sharp falls on Monday. S&P 500 index futures pared earlier gains, while Europe’s Stoxx 600 equity gauge traded near flat, after rising as much as 0.5%.

Global stocks had sold off on Monday as swathes of anti-Covid protests raised fears of a further economic growth setback and fresh disruptions at factories producing goods for Western multinationals. The S&P 500 closed 1.5% lower, dropping the most since early November.

“We do not expect China policy to publicly shift away from the Zero Covid stance, however, we could see some easing of the policy privately and in localized areas,” Jefferies analyst Mohit Kumar wrote in a note. Despite Monday’s China-related setbacks, he said “markets are in a happy state and are comforted by the expected reduction in the pace of rate hikes from central banks.”

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Many economists expect that Federal Reserve Chair Jerome Powell’s speech on Wednesday will cement bets that the central bank will slow its pace of rate increases next month — while reminding Americans that its fight against inflation will run into 2023. That view, alongside the easing in China tensions, knocked the dollar lower against a basket of peers, following two days of gains.

Still, central bankers have signaled rate hikes have further to run. St. Louis President James Bullard, for instance, warned that investors may be underestimating the chances of higher rates. His New York counterpart John Williams and Fed Vice Chair Lael Brainard also flagged that rates need to go higher.

Elsewhere, European Central Bank President Christine Lagarde signaled on Monday that more rate hikes are likely.

The hawkish drumbeat from central bankers is raising fears of a downturn, with global bonds joining US peers in signaling a recession, as a gauge measuring the worldwide yield curve inverted for the first time in at least two decades.

“I think the big risk for 2023 will be economic growth, because we have had this very very rapid move up in interest rates that tends to have a lag in terms of the impact on the economy,” Charlotte Ryan, co-head of investments at CCLA, told Bloomberg Television.

Investors highlighted stagflation as the key risk for the global economy next year, with almost half of the 388 respondents to the latest MLIV Pulse survey expecting a scenario where growth continues to slow while inflation remains elevated.

Asian trading saw strong rallies in Hong Kong and on the Chinese mainland, while the offshore-traded Chinese yuan jumped about 1% against the dollar.

Elsewhere in markets, oil extended a rebound from the lowest level in almost a year on speculation that the Organization of Petroleum Exporting Countries and its allies will deepen supply cuts to respond to weakening global demand.

Key events this week:

• Euro area economic confidence, consumer confidence, Tuesday

• US Conference Board consumer confidence, Tuesday

• EIA crude oil inventory report, Wednesday

• China PMI, Wednesday

• Fed Chair Jerome Powell speech, Wednesday

• Fed releases its Beige Book, Wednesday

• US wholesale inventories, GDP, Wednesday

• S&P Global PMIs, Thursday

• US construction spending, consumer income, initial jobless claims, ISM Manufacturing, Thursday

• BOJ’s Haruhiko Kuroda speaks, Thursday

• US unemployment, nonfarm payrolls, Friday

• ECB’s Christine Lagarde speaks, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 was little changed as of 9:57 a.m. London time

• Futures on the S&P 500 rose 0.2%

• Futures on the Nasdaq 100 rose 0.4%

• Futures on the Dow Jones Industrial Average were little changed

• The MSCI Asia Pacific Index rose 1.5%

• The MSCI Emerging Markets Index rose 2.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.5%

• The euro rose 0.2% to $1.0364

• The Japanese yen rose 0.6% to 138.12 per dollar

• The offshore yuan rose 0.9% to 7.1792 per dollar

• The British pound rose 0.3% to $1.1990

Cryptocurrencies

• Bitcoin rose 2% to $16,513.79

• Ether rose 3.9% to $1,217.46

Bonds

• The yield on 10-year Treasuries declined one basis point to 3.67%

• Germany’s 10-year yield declined nine basis points to 1.90%

• Britain’s 10-year yield declined three basis points to 3.10%

Commodities

• Brent crude rose 2% to $84.85 a barrel

• Spot gold rose 0.7% to $1,753.89 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Richard Henderson.

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