Hang Seng Index (.HSI) soared over 3% as the yuan traded near a three-year high, but economists said any economic boost would take time to materialize, and that any relaxation in controls might temporarily dampen demand as infections surge.
Global stocks rose and oil prices rebounded on Thursday as investors hoped that China’s easing of its anti-COVID-19 measures would restore global supply chains and temper inflation.
According to state media CCTV, Premier Li Keqiang said on Thursday that China’s policy shift, announced on Wednesday, would allow the economy to grow faster.
Goldman Sachs is forecasting that the price of copper could surge as much as $11,000 per ton, citing a surge in demand from China, the world’s largest consumer of the metal. In line with that prediction, Wall Street rose on Tuesday, as U.S.-listed Chinese stocks jumped.
Tim Ghriskey, chief investment strategist at Inverness Counsel in New York, believes that the return of China to the global market and the production of goods will help lower inflation, which is a positive development. If inflation can be reduced, the Fed can step back and pause, he says.
Economists warned that any economic boost from the relaxation of restrictions would take time to emerge, as Hong Kong’s Hang Seng index (.HSI) rose nearly 4% and the yuan neared a three-year high.
There have been recent developments.
The S&P 500 ended a five-day losing streak and MSCI’s all-country world index ended a four-day skid.
Global stock performance was boosted by an MSCI index gain of 0.68% (MIWD00000PUS). The Dow Jones Industrial Average (DJI) rose 0.54%, the S&P 500 (SPX) rose 0.75%, and the Nasdaq Composite (IXIC) gained 1.13%.
Share prices on the pan-European STOXX 600 index (.STOXX) fell 0.17% as concerns about an imminent recession grew.
Bond prices are plummeting, which is a bad sign for investors, says Jimmy Chang, chief investment officer at the Rockefeller Global Family Office in New York. He cites mixed messages from the markets as to whether the Fed will soon change course on interest rates.
The Federal Reserve is likely to announce a 50-basis-point increase in the USA central bank’s lending rate next week, while signifying a slower pace of future rate increases.
Chang says the bulls can spin the narrative that both inflation expectations and real yields are moving in the right direction and therefore that justifies the (recent) equity rally.
When asked about the market’s near-term prospects, he replied, “That’s very shortsighted, because we foresee a recession, and earnings estimates must come down.”
A decrease in global demand for oil and a leak in a key Canada-to-U.S. pipeline that led to a spike in oil production weighed on the market, while economic slowdowns around the world reduced demand.
Crude futures for June fell 55 cents to $71.46 a barrel, while Brent crude futures for July fell $1.02 to $76.15.
Investors are weighing the likelihood that the Fed’s tight monetary policy could trigger a recession, driving the dollar down against the euro. The euro rose 0.47% to $1.0554, up 0.47%.
The prices of bonds worldwide have been falling in recent weeks on expectations of slower economic growth or recession, which would dampen interest rate increases. Investors are now anticipating a report on inflation and the Federal Reserve meeting next week.
The yield on 10-year Treasury bonds rose 8.5 basis points to 3.493%, while Germany’s 10-year bond yield increased 2.6 basis points to 1.845%.
Investors positioned themselves ahead of the U.S. inflation data and the Fed’s policy announcements by easing the dollar, as gold prices edged higher.
The gold futures contract for the U.S. settled 0.2% higher at $1,801.50 an ounce.
Alexandra Hudson and Matthew Lewis contributed to this report, which was edited by Harry Robertson.
