By Amanda Cooper
LONDON (Reuters) – World stocks rose in volatile trading on Monday, despite Beijing denying it would consider relaxing its zero-COVID-19 policy, which halted safe-haven flows into the dollar ahead of inflation data. potentially crucial consumer this week.
Risk assets rallied on Friday amid speculation that China was preparing to relax its pandemic restrictions, but over the weekend health officials reiterated their commitment to a “dynamic cleaning” approach to COVID cases. as soon as they arise.
“We can question whether there is any truth to the China story, but the market is quite happy to give it credence at the moment, despite the big negatives,” said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets.
By mid-morning in Europe, an overnight rally in the dollar had fizzled out as traders clung to the idea that China could ease some of its restrictions after the government signaled on Monday it would make it easier for people to come and go. . the capital.
The dollar weakened against other major currencies, lifting the pound almost 0.8% to $1.1453 and the euro 0.4% to near parity at $0.99975.
The biggest macroeconomic event risk this week will be the consumer price index (CPI) for October, which could be instrumental in setting investors’ expectations about the likely course of the Federal Reserve’s monetary policy.
Fed Chairman Jerome Powell quashed speculation last week that the central bank might slow its rate hikes, saying interest rates would likely stay higher for longer.
On Friday, the October jobs report showed much faster-than-expected job growth, but slower wage growth and a rise in the unemployment rate, suggesting some of the tightness in the labor market may be easing. .
For Thursday, the median forecasts are for annual CPI inflation to slow to 8.0% and core inflation to ease a bit to 6.5%.
“If we can see a moderation in the core CPI, I think that might be a bit to imply that, but I think if we see that it will encourage this correction to go a little bit further,” CIBC’s Stretch said.
In the stock market, travel and leisure stocks, led by online betting group Flutter Entertainment and budget airline Ryanair, were among the biggest gainers in the STOXX 600, which rose 0.6%.
The MSCI All-World Index gained 0.5%, buoyed by overnight strength in Asian markets, with Shanghai’s CSI 300 ending 0.2% higher and Hong Kong’s Hang Seng gaining 2%. .75%, after last week’s 8.7% gain.
The offshore yuan fell 0.7% to 7.2282, but still remained near its strongest point against the dollar in about a week.
Speculation that China, the world’s biggest commodity consumer, might open its economy sent copper up 7% on Friday in its biggest one-day rally since 2009, while oil rose more than 4%.[MET/L] [O/R]
S&P 500 and Nasdaq futures erased earlier losses and rose 0.3%.
Four Federal Reserve lawmakers indicated Friday they would still consider a smaller interest rate hike at their next policy meeting, sounding less aggressive than Chairman Jerome Powell.
There are at least seven Fed officials scheduled to speak this week, which will help refine the outlook for rates as markets now lean narrowly toward a half-point rate hike next month to 4.25- 4.5%.
“We contend that the Fed will see enough progress in inflation to stop at 4.75% in February, but the risks are skewed to more hikes likely to trigger a recession sometime later in 2023 or early 2024,” said Bruce Kasman. , head of economic research. at JPMorgan.
Two-year Treasury yields, which are the best responsive to expectations around inflation and interest rates, last rose 3 basis points on the day to 4.68%, from Friday’s high of 2007.
Also of note is Tuesday’s US midterm elections, in which Republicans could gain control of one or both chambers and lead to an impasse on fiscal policy.
Meanwhile, oil eased, giving up some of last week’s gains. Brent crude fell 0.1% to $98.37 a barrel, while US crude fell 0.3% to $92.29 a barrel.
(Additional reporting by Wayne Cole in Sydney; Editing by Daniel Wallis, Shri Navaratnam and Ed Osmond)