European stocks and US futures rose, and the dollar fell, on Monday as markets speculated China would ease its strict zero-Covid stance, even as Beijing insisted its hardline measures would remain in place.
The regional Stoxx Europe 600 was up 0.6 per cent in early Monday trading having finished last week 1.3 per cent higher.
Futures contracts tracking Wall Street’s benchmark S&P 500 rose 0.4 per cent and those tracking the tech-heavy Nasdaq 100 added 0.3 per cent.
Investors have feared the impact on global economic growth of aggressive rate rises from the Federal Reserve, which also signaled last week that interest rates will rise higher than previously expected. A US jobs report on Friday also indicated the labor market is still running hot.
The Nasdaq last week fell 5.6 per cent in its biggest decline since late January, and the S&P dropped 3.4 per cent its biggest weekly decline since late September.
Traders continued to bet that China would soften its zero-Covid policy, a move they hope will boost flagging global economic growth. The dollar index, which measures the US currency against a basket of peers, fell 0.3 per cent.
China equities rose sharply, before trimming their gains, as the Chinese government said there would be no change to its stringent Covid-19 prevention measures. The daily number of Covid infections in China hit a six-month high of 4,420 on Saturday, official data showed. Hong Kong’s Hang Seng index added 2.5 per cent, while China’s CSI 300 rose 0.2 per cent.
Emmanuel Cau, European equity strategist at Barclays, said a “quick and broad reopening [in China] seems highly unlikely”, but that “there may be a case for authorities to turn more supportive of growth into 2023, which could be a game changer for markets”.
Adding to the optimism, Chinese exports also contracted 0.3 per cent in October compared with the same period a year before, well below economists’ forecasts of a 4.5 per cent expansion. Imports also shrank 0.7 per cent, missing expectations for 0.1 per cent growth, according to customs data released on Monday.
Elsewhere in Asia, Japan’s Topix rose 1 per cent and South Korea’s Kospi gained 0.9 per cent.
European gas prices fell sharply on Monday, with Dutch TTF gas futures, the region’s benchmark contract, down as much as 8 per cent to €111 per megawatt hour. The wholesale European gas price hit an intraday high of €343 per megawatt hour in late August but has fallen thanks to relatively warm weather and greater than expected supplies.
Investors welcomed better than expected German economic data. Industrial production rose 0.6 per cent month on month in September, better than the 0.8 per cent decline expected by economists polled by Reuters. Even so, Franziska Palmas, an economist at Capital Economics, maintained that Europe’s largest economy would plunge into a “deep recession” in the new year.
In government bond markets, the yield on the two-year Treasury added 0.03 percentage points to 4.68 per cent, while the yield on the 10-year slipped 0.03 percentage points to 4.13 per cent.
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