Stocks Recover Even as Growth Continues, Inflation Fears Remain

Empty prices are displayed in the stock price panels of the Tokyo Stock Exchange (TSE) after the Tokyo Stock Exchange temporarily suspended all trading due to system problems in Tokyo, Japan, October 1, 2020. REUTERS / Issei Kato / Files

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LONDON (Reuters) – Global stocks rebounded on Tuesday on optimism about easing China’s draconian measures against technology and COVID-19, but concerns about rising prices and slowing growth around the world set off a nervous tone elsewhere in markets.

European stocks followed the positive start in Asia, with the STOXX index of the 600 largest stocks in Europe (.stoxx) Up 1.7% and US stock futures, S&P 500 e-minis, suggest Wall Street will follow suit.

MSCI’s broadest index of Asia Pacific shares outside Japan (.MIAPJ0000PUS.) It gained 2.5%, but the index is still down 16.8% so far this year.

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“There was a good session in Asia, and if we take the S&P 500 as a guide, it looks like the US will rise by about 1% … but looking to the future markets remain focused on inflation and rate hikes,” said Philip Shaw, chief economist. At Investec in London.

“Headlines focus on high inflation pressures either caused directly by the conflict in Ukraine, or supply chain shortages caused in part by the lockdowns in China,” he said.

There were signs of nervousness in bonds, currencies and commodities as economic growth concerns in the world’s two largest economies re-emerged after weak retail and factory numbers in China and disappointing US manufacturing data. Read more.

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An index compiled by US bank Citi that monitors whether economic data is coming in better or worse than economists had been expecting, is back in negative territory.

Negative surprises

The New York Fed’s Empire State Manufacturing Index, published on Monday, showed a surprising drop during May and shipments fell at the fastest pace since the pandemic began. Read more

The yield on the benchmark 10-year Treasury rose to 2.9185% compared to Monday’s close in the United States at 2.879%, while the two-year bond yields, which rose as traders expected to raise the federal funds rates, rose to 2.6195%.

Investors will look to a slew of central bank policymakers speaking on Tuesday for more clues about the timing of interest rate hikes to combat inflation.

US Federal Reserve Chairman Jerome Powell, European Central Bank President Christine Lagarde and Bank of England Deputy Governor John Cunliffe are scheduled to speak at 1800 GMT.

Futures markets are pricing in consecutive increases of 50 basis points in June and July and for the benchmark interest rate in the US to reach 2.75% by the end of the year. However, there is a growing expectation that other central banks will be catching up.

currency vector

Currency and commodity markets were jittery with profit taking from investors worried about the pessimistic economic data.

The Turkish lira fell 2 percent, its biggest decline since January, as fears of a global recession fueled selling pressure on the currency.

The US Dollar Index, which measures the greenback against a basket of currencies, fell 0.35% to 103.8 as investors cashed in and scaled back their bets on a US interest rate hike leading to further gains. Read more

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The European single currency was up 0.4% on the day at $1.0475, after losing 0.96% in one month.

Oil hit a seven-week high on Tuesday, buoyed by continued pressure from the European Union to impose a ban on Russian oil imports that would tighten supply, and as investors focused on increasing demand from easing China’s coronavirus lockdowns. Read more

Brent crude rose to $115.14, the highest since March 28, while US West Texas Intermediate crude rose 63 cents to $114.84.

Gold prices strengthened, as the decline in the dollar bolstered demand for bullion priced in US dollars and faced pressure from the recovery in US Treasury yields. Spot gold was up 0.2% at $1,827.44 an ounce.

Bitcoin appears to have at least temporarily stabilized at $30,295, after days of heavy losses in the cryptocurrency markets following the collapse of the prices of several leading stablecoins.

China batch

Hopes that China would ease two major sets of restrictions created positive mood in stocks early Tuesday.

Shanghai has achieved the long-awaited achievement of three consecutive days with no new COVID-19 cases outside the quarantine areas, which could lead to the beginning of the lifting of the city’s severe lockdown. Read more

Meanwhile, people familiar with the matter told Reuters that Chinese Vice Premier Liu He is scheduled to speak at a meeting on Tuesday with technology executives to promote the development of the digital economy. Read more

The meeting is being closely watched for clues about how far Chinese authorities will go in easing the regulatory crackdown in place since late 2020 on the previously soaring tech sector.

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China Mainland Index CSI300 (.CSI300) It rose 1.25% while the Hang Seng Index rose in Hong Kong (.HSI) It was 3.27% higher, with tech companies listed in the city (.HSTECH) Nearly 6% jumped, hoping to ease Beijing’s crackdown on the sector.

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Additional reporting by Scott Murdoch in Hong Kong. Editing by Lincoln Fest, Kirsten Donovan and Barbara Lewis

Our criteria: Thomson Reuters Trust Principles.

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