LONDON (Reuters) – Stocks and oil rose on Tuesday, supported by hopes that public unrest in China would lead to an earlier easing of the COVID-19 curb in the world’s second-largest economy.
The yuan strengthened and the dollar fell as investors’ appetite for riskier assets grew.
Euro Stoxx 600 (.STOXX) It gained as much as 0.5% before giving up some of its gains, recovering from its worst session in nearly two weeks on Monday.
Commodity-linked stocks in London (.FTSE) starred with the miners (.SXPP) and major oil companies (.SXEP) It contributed to a 0.7% gain that outperformed the indices in Paris (.FCHI) and frankfurt (.GDAXI).
Hopes of a faster easing of strict Chinese restrictions rose after an official said authorities would continue to adjust policy to reduce the impact of “zero COVID” on society.
Deep discontent with Beijing’s strict COVID-prevention policies three years into the pandemic flared over the weekend in wider protests in Chinese cities thousands of miles away.
“China is the dominant story in the markets right now, and the pattern of risky assets that we’ve seen overnight is what we would expect with better news,” said Hugh Gember, global market strategist at JPMorgan Asset Management.
“Positive news for the Chinese economy is positive news for the global economy.”
MSCI World Stock Index (.MIWD00000PUS)The index, which measures stocks in 47 countries, rose 0.3%, while S&P 500 futures also rose 0.3% and Nasdaq futures rose 0.5%.
The sudden bout of optimism about China was coupled with talk of possible production cuts by OPEC+ to help oil prices rise.
US crude futures rebounded $1.53 to $78.78 a barrel, after hitting their lowest levels this year overnight, while Brent rose $1.83 to $85.12.
In a sign of risk appetite, the dollar fell 0.4% against a basket of currencies to 106.06, and slipped 0.9% against the offshore yuan to 7.1830, reversing all of Monday’s gains.
Meanwhile, yields on eurozone government bonds fell broadly after inflation in Spain and Germany’s most populous state fell short of expectations. The data offered hope that the worst of consumer price pressures on the bloc may soon be over.
Earlier, it was the broadest MSCI index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) 2.5% profit.
Shares of Chinese real estate companies rose after the country’s securities regulator lifted a ban on stock refinancing for listed real estate companies. That boosted Chinese potato chips (.CSI300) Nearly 3%, the largest one-day rise in a month after sharp declines on Monday.
Hopes for an easing of COVID restrictions also helped lower the cost of insuring exposure to Chinese debt, after it hit a three-week high on Monday amid a broad sell-off.
higher for longer
Richmond Fed President Thomas Barkin has become the latest official to dampen speculation that the US central bank will reverse course on interest rates relatively quickly next year.
The escalating tensions come ahead of Fed Chair Jerome Powell’s speech on Wednesday which is shaping up to be a major messaging event as markets crave a pivot in politics.
Analysts think they may be disappointed.
“We envision it essentially confirming a slower pace of increases at the December meeting, which is almost fully priced,” said Jan Nefrozi, analyst at NatWest Markets. “But we also think it will reiterate that the Fed intends to stay in a restricted area until next year.”
European Central Bank President Christine Lagarde also warned that inflation in the eurozone has not peaked and could rise further.
A Reuters poll found that tightening financial conditions and the prospect of a recession are expected to be toxic drinking by 2023, with a leading regional index falling towards its lowest levels in October.
The euro rose 0.3 percent to $1.0375, after hitting a five-month high of $1.0497 overnight.
Additional reporting by Tom Wilson in London and Wayne Cole in Sydney; Editing by Bradley Perrett, Kirsten Donovan and Suzanne Fenton
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