Stocks Gain as China Virus Easing Spurs Optimism: Markets Wrap

(Bloomberg) -- Stocks and US futures advanced after China eased some virus curbs and Wall Street had its best week since November 2020. Euro-area bonds tumbled after inflation prints surprised to the upside.

A fourth day of gains for European equities extended their longest winning streak since late March and drove the Stoxx 600 index to the highest in more than three weeks. Luxury stocks outperformed Monday as China’s reopening plans boosted sentiment.

Nasdaq 100 contracts and S&P 500 futures both rose in a sign the bounce in US stocks may have further to run. The S&P 500 wiped out its May losses and snapped a string of seven weekly declines as institutional investors rebalanced portfolios into the end of the month.

The dollar slipped for a third day versus major peers as havens lost their appeal amid the improved mood. Cash Treasuries aren’t trading because of the US Memorial Day holiday.

“Risk is back in business it seems,” said AJ Bell investment director Russ Mould. “A reopening of key economic hubs in China and suggestions the US Federal Reserve might slow the pace of interest rate hikes are helping to boost sentiment, at least in the short term.”

Spanish inflation unexpectedly quickened, while regional German inflation data also pointed to a worrisome picture ahead, denting hopes that the euro zone’s record price surge has peaked and piling more pressure on the European Central Bank to act. German bunds fell the most in two weeks.

Oil climbed in response to the easing of Chinese lockdowns and as the European Union worked on a plan to ban imports of Russian crude.

In Asia, Japanese and Hong Kong equities led gains. China’s yuan outperformed after the nation reported fewer Covid-19 cases in Beijing and Shanghai. China’s reopening moves prompted a gauge of emerging-market stocks to rise to the highest since May 5. Bitcoin posted its biggest gain in two weeks, climbing close to $31,000. 

Read: Wild Five Months Leaves Wall Street Split on When Selloff Ends

Traders are pondering whether the bottom of the selloff is near as investors have been buying the dip after one of the worst starts to the year for equities. However, a wall of worries remains from hawkish central banks underscoring fears of a recession, escalating food inflation from the war in Ukraine and China’s lockdowns stunting economic activity.  

“We are in the middle of a bear-market rally,” said Mahjabeen Zaman, Citigroup Australia head of investment specialists, said on Bloomberg Television. “I think the market is going to be trading range-bound trying to figure out how soon is that recession coming or how quickly is inflation going down.” She added that Treasury yields are set to peak this year.

Traders will be looking to the US payroll numbers later this week to gauge the Federal Reserve’s tightening path as it strives to rein in inflation. Meanwhile, the Fed is set to start shrinking its $8.9 trillion balance sheet starting Wednesday. 

China in Danger of Exporting Fresh Inflation Turmoil: MLIV Pulse

Here are some key events to watch this week:

• US markets closed for Memorial Day Monday
• EU leaders start a two-day special meeting in Brussels Monday with the war in Ukraine, defense, inflation, energy and food security on the agenda
• China PMI Tuesday
• Euro zone CPI Tuesday
• The Federal Reserve is set to start shrinking its $8.9 trillion balance sheet Wednesday
• The Fed releases its Beige Book report on regional economic conditions Wednesday
• New York Fed President John Williams, St. Louis Fed President James Bullard speak at separate events Wednesday
• OPEC+ virtual meeting Wednesday
• Cleveland Fed President Loretta Mester discusses the economic outlook Thursday
• US May employment report Friday
• The UN’s Food and Agriculture Organization releases its monthly food price index at a time of maximum concern about global supplies on Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.6% as of 11:29 a.m. London time
• Futures on the Nasdaq 100 rose 1.2%
• Futures on the Dow Jones Industrial Average rose 0.6%
• The MSCI Asia Pacific Index rose 2%
• The MSCI Emerging Markets Index rose 2.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro rose 0.2% to $1.0761
• The Japanese yen fell 0.2% to 127.32 per dollar
• The offshore yuan rose 0.7% to 6.6752 per dollar
• The British pound was little changed at $1.2642

Bonds

• Germany’s 10-year yield advanced eight basis points to 1.04%
• Britain’s 10-year yield advanced six basis points to 1.98%

Commodities

• Brent crude rose 0.3% to $119.82 a barrel
• Spot gold rose 0.1% to $1,855.79 an ounce

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