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European and Asian stocks rose on Monday after China loosened some Covid-19 restrictions, soothing markets that have been unsettled by concerns over global central bank rate rises to tackle persistently high inflation.
The Stoxx Europe 600 share index added 0.9 per cent in morning dealings, remaining almost 9 per cent lower year to date because of the economic impact of Russia’s invasion of Ukraine and soaring consumer prices. London’s FTSE 100 added 1.2 per cent, with energy stocks rising after Saudi Arabia raised oil prices for Asian buyers. Germany’s Xetra Dax gained 1 per cent.
In Asia, mainland China’s CSI 300 share index added 1.9 per cent and Hong Kong’s Hang Seng rose 2.7 per cent, with bourses in Tokyo, Seoul and Taipei registering smaller gains.
These moves came after China’s capital city, Beijing, said public transport would resume in most districts and restaurants could reopen for diners, sparking hopes of an end to draconian lockdowns that have slowed the growth of the world’s second-largest economy and strained global supply chains. A contraction of China’s services sector also slowed in May, a closely watched business activity survey showed on Monday.
“The balance of probabilities suggest that the worst of data points has passed for now,” Jefferies strategist Sean Darby said in a note to clients about the Chinese economy, while cautioning that the “ultimate stock catalyst” would not arrive until the nation had improved its faltering Covid vaccines.
Futures trading implied Wall Street’s S&P 500 would add 1.2 per cent at the New York open. After another loss last week as jobs data strengthened the case for aggressive rate rises by the Federal Reserve, the S&P has fallen for eight of the past nine weeks.
“I just struggle to see that this is over,” said Neil Birrell, chief investment officer at Premier Miton Investors, of the US stock market downturn. “I can’t see that we’ve hit the bottom yet.”
Contracts tracking the technology-heavy Nasdaq 100 added 1.6 per cent.
Data on Friday are expected to show that US inflation hit 8.3 per cent in May on an annual basis, according to a Reuters poll, in line with the previous month’s reading. But last week’s strong jobs data suggested “the Fed will continue to act,” by raising interest rates, Birrell said.
The Fed’s main funds rate stands at 0.75 per cent, with money markets predicting a rise to 2.8 per cent by the end of the year.
In currency markets, sterling gained 0.6 per cent against the dollar to less than $1.26 as UK prime minister Boris Johnson faced a vote of no confidence in his leadership on Monday.
The euro added 0.3 per cent to more than $1.07 ahead of this week’s European Central Bank meeting. The bank is widely expected to signal a plan to lift its main deposit rate, currently at minus 0.5 per cent, by a quarter point in July and return to positive borrowing costs in the eurozone by September.
Italian government bonds firmed after the Financial Times reported the ECB would prop up weaker eurozone nations’ debt markets if they were hit by a sell-off driven by concerns about funding costs.
The yield on Italy’s 10-year bond dropped 0.03 percentage points to 3.37 per cent as the price of the debt rose.
This came after the gap between Italy and Germany’s 10-year bond yields — benchmarks for borrowing rates in the two nations — rose last week to its highest since early 2020.
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