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By Amanda Cooper
LONDON (Reuters) – Global stocks rose on Monday, despite Beijing denying it would consider relaxing its zero COVID-19 policy, which diverted investor flows away from the dollar ahead of potentially crucial consumer inflation data this week.
Risk assets rebounded on Friday on speculation that China was preparing to relax its pandemic restrictions, but over the weekend health officials reiterated their commitment to the “dynamic cleaning” approach to COVID cases as soon as possible. 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.
The dollar came under pressure for a second day 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 get in and out of the capital.
The dollar fell against other major currencies, lifting the pound 0.8% to $1.1457 and the euro 0.2% to near parity at $0.9980.
S&P 500 and Nasdaq futures rose 0.2% and 0.3%, respectively.
The biggest macroeconomic event risk this week will be the October US consumer price index (CPI), which could influence 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 inflation to slow to 8.0% and core inflation to ease a bit to 6.5%.
“If we can see a moderation in core CPI, which I think might imply that a little bit, but I think if we do see it, it will encourage this correction to go a little bit further,” CIBC’s Stretch said.
Speculation that China, the world’s biggest commodity consumer, might open up its economy lifted copper 7% on Friday in its biggest one-day rally since 2009, while oil rose more than 4%.[MET/L] [O/R]
Four Federal Reserve lawmakers indicated Friday that they would 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%.
“I don’t think the market will do much ahead of the US inflation data,” said Massimiliano Maxia, senior fixed income specialist at Allianz Global Investors.
“Markets are expecting a 50 bps (Fed) rate hike in December and 25 bps early next year, but are ready to change their view fairly quickly if consumer price numbers surprise to the upside,” he added.
Two-year Treasury yields, more sensitive to inflation and interest rate expectations, rose 6 basis points on the day to 4.711%, from a high on Friday 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 0.7% to $97.96 a barrel, as did US crude at $91.91 a barrel.
(Additional reporting by Stefano Rebaudo in Milan and Wayne Cole in Sydney; Editing by Daniel Wallis, Shri Navaratnam, Ed Osmond and Tomasz Janowski)