©Portal. FILE PHOTO: People walk past an electronic screen showing Japan’s Nikkei stock price index at a conference hall in Tokyo, Japan June 14, 2022. Portal/Issei Kato
By Amanda Cooper
LONDON (Portal) – Global stocks rose on Monday even as Beijing denied it was considering easing its zero-COVID-19 policy, diverting investor flows away from the dollar ahead of what could be a crucial consumer inflation data this week.
Risk assets rallied on Friday on speculation that China was preparing to ease its pandemic restrictions, but over the weekend health officials reiterated their commitment to the “dynamic clearing” approach to COVID cases as they emerge.
“We can question the truth of the China story, but the market is quite happy to give it credence at the moment, despite the huge denials,” said Jeremy Stretch, head of G10 currency strategy at CIBC Capital Markets.
The dollar came under pressure for a second day as traders clung to the idea that China might ease some of its restrictions after the government hinted on Monday it will make it easier for people to enter and exit the capital .
The dollar fell against other major currencies, causing the pound to rise 0.8% to $1.1457 and the euro to rise 0.2% to near par at $0.9980.
and Nasdaq futures edged higher, up 0.2% and 0.3%, respectively.
The biggest macro risk event this week will be the US October Consumer Price Index (CPI), which could influence investor expectations on the likely course of US Federal Reserve monetary policy.
Fed Chair Jerome Powell last week dismissed speculation that the central bank might be slowing the pace of its rate hikes, saying interest rates are likely to remain high 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 job market may be easing.
MEDIAN FORECAST
For Thursday, median forecasts see annual inflation slowing to 8.0% and core falling a tad to 6.5%.
“If we can see moderation in core CPI, which I think might be a little indicative of that, but I think if we see that, it will encourage this correction to go a bit further,” CIBC’s Stretch said.
Speculation that China, the world’s biggest consumer of commodities, might open up its economy rose 7% on Friday in its biggest one-day rally since 2009, while oil rose more than 4%.[MET/L] [O/R]
Four Federal Reserve policymakers said Friday they would consider a smaller rate hike at their next meeting, sounding less hawkish than Chair Jerome Powell.
At least seven Fed officials are due to speak this week, which will help refine the rate outlook as markets are now narrowly poised for a half-point hike to 4.25-4.5% next month.
“I don’t think the market will do much given the US inflation data,” said Massimiliano Maxia, senior fixed income specialist at Allianz (ETR:) Global Investors.
“Markets are expecting a (Fed) rate hike of 50 basis points in December and 25 basis points early next year, but are poised to change their view fairly quickly if consumer price numbers surprise on the upside,” he added.
Two-year government bond yields, which are most sensitive to inflation and interest rate expectations, rose 6 basis points on the day to 4.711%, from Friday 2007’s peak.
Also of note are Tuesday’s US midterm elections, which could see Republicans gain control of one or both chambers and lead to a fiscal gridlock.
Meanwhile, oil eased, giving up some of last week’s gains. fell 0.7% to $97.96 a barrel, as did , to $91.91 a barrel.