European and Asian stocks rose as renewed optimism for China’s economic recovery outweighed concerns US borrowing costs will stay higher for longer. The dollar took a breather from a three-week rally.
(Bloomberg) — European and Asian stocks rose as renewed optimism for China’s economic recovery outweighed concerns US borrowing costs will stay higher for longer. The dollar took a breather from a three-week rally.
The Stoxx Europe 600 Index advanced, trading near a one-year high, as expectations for Chinese demand propped up commodity stocks. The Shanghai Composite Index climbed the most since November. US equity-index futures and Treasury futures were lower as investors assessed hawkish comments by Federal Reserve officials. Trading volumes were thin amid a US holiday.
A chorus of investors including Goldman Sachs Group Inc. is betting on Chinese equities to resume a rally as the world’s second-biggest economy deepens stimulus and relaxes pandemic restrictions. While this has sparked inflows into global assets tied to the Chinese economy, the broader sentiment in markets remains impaired, with the Fed resolute on its fight against inflation. Growing geopolitical tensions are also preventing investors from turning more bullish.
“The only place where the central bank will remain soft enough is China, to recover from a series of absurd Covid measures that pushed the economy into an unnecessary depressed zone,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, wrote in a note. “The geopolitical tensions aren’t going in the right direction for restoring confidence.”
Europe’s Stoxx 600 rose for the fifth time in six days. A resilient fourth-quarter earnings season has helped the region’s stocks extend January’s rally as companies were able to shake off the impact of higher costs amid a drop in natural gas prices.
In China, stocks gained after a Goldman report that penciled in a rebound on the back of an earnings recovery. Calls for further stimulus via lower rates also built up, prompting the nation’s banks to keep their lending rates unchanged.
Contracts on the S&P 500 and Nasdaq 100 indexes fell about 0.1% each and Treasury futures fell across the curve. Stocks ended last week on a muted note after Richmond Fed President Thomas Barkin and Fed Governor Michelle Bowman both expressed their support for continued rate hikes. That followed hawkish remarks by St. Louis Fed President James Bullard and Cleveland President Loretta.
Investors were also watching growing tensions between the world’s two superpowers. US Secretary of State Antony Blinken and China’s State Councilor Wang Yi traded barbs on everything from Taiwan to North Korea and Russia in their first meeting since a spy balloon controvery.
Oil futures advanced. Demand from China will climb by 800,000 barrels a day in 2023, according to the median estimate of 11 China-focused consultants surveyed by Bloomberg News. That would take consumption to an all-time high of about 16 million barrels a day, the survey showed.
Looking further ahead this week, investors will also be watching for more commentary on the American consumers as Walmart Inc. and Home Depot Inc. kick off a slew of retail earnings reports. Further signs of resilient economy could provide more reasons for the Fed to hold rates higher for longer.
Key events this week:
- Earnings for the week are scheduled to include: Alibaba, Anglo American, AXA, BAE Systems, Baidu, BASF, BHP, Danone, Deutsche Telekom, Holcim, Home Depot, Hong Kong Exchanges & Clearing, HSBC, Iberdrola, Lloyds Banking Group, Moderna, Munich Re, Newmont, Nvidia, Rio Tinto, Walmart, Warner Bros Discovery
- US financial markets closed for Presidents’ Day holiday, Monday
- PMIs for Japan, Eurozone, UK, US, Tuesday
- US existing home sales, Tuesday
- US MBA mortgage applications, Wednesday
- The Federal Reserve minutes from Jan. 31-Feb. 1 policy meeting, Wednesday
- Eurozone CPI, Thursday
- US GDP, initial jobless claims, Thursday
- Atlanta Fed President Raphael Bostic speaks, Thursday
- G-20 finance ministers and central bank governors meet in India, Thursday-Friday
- Japan CPI, Friday
- BOJ governor-nominee Kazuo Ueda appears before Japan’s lower house, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.2% as of 8:36 a.m. London time
- S&P 500 futures fell 0.1%
- Nasdaq 100 futures fell 0.1%
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index rose 0.6%
- The MSCI Emerging Markets Index rose 0.6%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0691
- The Japanese yen fell 0.1% to 134.30 per dollar
- The offshore yuan rose 0.2% to 6.8631 per dollar
- The British pound was little changed at $1.2025
Cryptocurrencies
- Bitcoin fell 0.3% to $24,470
- Ether rose 0.4% to $1,692.62
Bonds
- The yield on 10-year Treasuries was little changed at 3.81%
- Germany’s 10-year yield advanced one basis point to 2.45%
- Britain’s 10-year yield was little changed at 3.51%
Commodities
- Brent crude rose 0.9% to $83.76 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar and Akshay Chinchalkar.
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