Stocks rise as investor optimism over China coronavirus dips on dollar By Reuters

Written by Amanda Cooper

LONDON (Reuters) – Global stocks rose on Monday, despite Beijing’s denial that it would consider easing its COVID-19 zero policy, which has diverted investor flows away from the dollar ahead of this week’s likely pivotal consumer inflation data.

Risky assets rebounded on Friday on speculation that China is preparing to ease its epidemic restrictions, but over the weekend health officials reiterated their commitment to a “dynamic clearing” approach to COVID cases as they emerge.

“We can question whether the China story has any validity, but the market is very happy to give it credibility for now, despite the huge denials,” said Jeremy Stretch, CIBC Capital Markets’ head of currency strategy for the G10.

The dollar came under pressure for a second day, as traders stuck to the idea that China could ease some of its restrictions, after the government indicated on Monday that it would make it easier for people to enter and exit the capital.

The dollar fell against the other major currencies, pushing the pound up 0.8% to $1.1457, and supporting the euro by 0.2% to approach parity at $0.9980.

Nasdaq futures rose 0.2% and 0.3%, respectively.

The biggest macroeconomic risk event this week will be the US October Consumer Price Index (CPI), which may influence investors’ expectations of the likely path of federal monetary policy.

Federal Reserve Chairman Jerome Powell dismissed speculation last week that the central bank may slow the pace of interest rate hikes, saying interest rates will likely remain high for longer.

On Friday, the October employment report showed much faster job growth than expected, but slower wage growth and a rise in the unemployment rate, suggesting that some labor market distress may be easing.

average expectations

For Thursday, the median forecast expects annual inflation to slow to 8.0% and the core to fall to 6.5%.

“If we can see a moderation in the core CPI, which I think could mean quite a bit, but I think if we do see that, it will encourage this correction to go a little bit,” CIBC’s Stretch said.

Speculation that China, the world’s largest consumer of commodities, may open its economy by 7% on Friday in the biggest one-day rise since 2009, while oil rose more than 4%.[MET/L] [O/R]

Four Federal Reserve policymakers indicated on Friday that they would consider a smaller rate hike at their next policy meeting, appearing less hawkish than Chairman Jerome Powell.

At least seven Fed officials are scheduled to speak this week, which will help improve the rate outlook with markets now narrowly tilting toward a half-point rate hike next month to 4.25-4.5%.

“I don’t think the market will do much before the US inflation data,” said Massimiliano Macia, chief fixed income specialist at Allianz (ETR: Global Investors).

“Markets are expecting a 50 basis point (Fed) rate hike in December and 25 basis points early next year, but are prepared to change their view very quickly if the CPI numbers surprise a hike,” he added.

Two-year Treasury yields, more sensitive to inflation and interest rate expectations, were up 6 basis points on the day at 4.711%, far from Friday’s 2007 peak.

Also of note is Tuesday’s US midterm elections where Republicans could win control of one or both chambers and lead to an impasse over fiscal policy.

Meanwhile, oil prices fell, giving up some of last week’s gains. It fell 0.7 percent to $97.96 a barrel, as it did to $91.91 a barrel.