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Stocks dip while U.S. crude gains on China hopes

Stocks and oil buoyed by hopes of looser Chinese COVID curbs By Reuters

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Economy 2 hours ago (Nov 29, 2022 15:11)

© Reuters. FILE PHOTO: A pedestrian stands to look at an electronic board showing the stock market indices of various countries outside a brokerage in Tokyo, Japan, February 26, 2016. REUTERS/Yuya Shino/File Photo

By Tom Wilson

LONDON (Reuters) – Stocks and oil gained on Tuesday, buoyed by hopes that public unrest in China could spark an earlier loosening of COVID-19 curbs in the world’s second-biggest economy.

The yuan strengthened and the dollar was down as investor appetite for riskier assets grew.

The Euro STOXX 600 gained as much as 0.5% before giving up some of its gains, recovering from its worst session in almost two weeks on Monday.

Commodity-linked shares in London starred, with miners and oil majors contributing to gains of 0.7% that outperformed indexes in Paris and Frankfurt.

Hopes of faster easing of China’s strict restrictions rose after an official said authorities would continue to fine-tune policy to reduce the impact of “Zero COVID” on society.

Simmering discontent with Beijing’s stringent COVID prevention policies three years into the pandemic ignited over the weekend into broader protests in Chinese cities thousands of miles apart.

“China is the dominant story in markets at the moment, and the pattern of risk assets that we have seen overnight is what we would expect with better news,” said Hugh Gimber, global market strategist at JP Morgan Asset Management.

“Positive news for the Chinese economy is positive news for the global economy.”

The MSCI world equity index, which tracks shares in 47 countries, rose 0.3%, while S&P 500 futures also rose 0.3% and Nasdaq futures added 0.5%.

The sudden bout of optimism on China combined with talk of possible output cuts by OPEC+ to help oil prices rally. [O/R]

U.S. crude futures bounced $1.53 to $78.78 a barrel, having hit their lowest this year overnight, while Brent climbed $1.83 to $85.12.

In a sign of appetite for risk, the dollar fell 0.4% against a basket of currencies to 106.06, and shed 0.9% against the offshore yuan to 7.1830, erasing all the gains made on Monday.

Euro zone government bond yields, meanwhile, fell broadly after inflation in Spain and in Germany’s most populous state came in below expectations. The data offered hope that the worst of the bloc’s consumer price pressures may soon be over.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan gained 2.5%.

Shares of Chinese property companies surged after the country’s securities regulator lifted a ban on equity refinancing for listed property firms. That buoyed Chinese blue chips almost 3%, the largest one-day rally in a month after Monday’s steep falls.

Hopes of eased COVID restrictions also helped the cost of insuring exposure to Chinese debt nudge lower, after hitting a near-three week high on Monday amid a wider selloff.

HIGHER FOR LONGER

Richmond Federal Reserve Bank President Thomas Barkin became the latest official to douse speculation the U.S. central bank would reverse course on interest rates relatively quickly next year.

That heightened tensions come ahead of a speech by Fed Chair Jerome Powell on Wednesday that is shaping up to be a major messaging event as markets yearn for a pivot on policy.

Analysts suspect they may be disappointed.

“We envision him basically confirming a slower pace of hikes at the December meeting, which is almost entirely priced in,” said Jan Nevruzi, an analyst at NatWest (LON:NWG) Markets. “But we also think he will reiterate that the Fed intends to stay in restrictive territory through next year.”

European Central Bank President Christine Lagarde has also warned that euro zone inflation has not peaked and may go even higher.

Tightening financial conditions and the prospect of a recession are set to be a toxic brew going into 2023 with a key regional benchmark seen sliding towards October lows, a Reuters poll found.

The euro was 0.3% higher at $1.0375, having hit a five-month peak of $1.0497 overnight.

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