Despite crude oil hitting $120 a barrel, global equity markets rose on Monday on signs of China loosening COVID-19 pandemic-related and other restrictions, and as investors prepared for expected interest rate hikes in the coming days.
The dollar rose against the euro ahead of a policy meeting of the European Central Bank on Thursday, but risk appetite waned after being higher earlier in the day.
Sterling rose ahead of Prime Minister Boris Johnson’s victory in a confidence vote in Parliament, but a rebellion by 148 of his 359 Conservative Party lawmakers dealt a serious blow to his authority.
The easing of domestic pandemic-related curbs, as well as a Wall Street Journal report that Chinese regulators are wrapping up investigations into ride-hailing giant Didi Global Inc, have boosted sentiment, according to Marc Chandler, chief market strategist at Bannockburn Global Forex.
Chandler mentioned China, saying, “You’ve got the world’s second-largest economy continuing to open up.” “It appears that Didi is back in the app stores, and Beijing has reopened public transportation.”
Didi’s stock rose 24.3 percent after surging more than 50 percent in response to the Journal report. The news earlier in the day boosted Hong Kong’s Hang Seng technology index, which ended the day 4.6 percent higher.
President Joe Biden has asked his team to look into the possibility of lifting some tariffs on Chinese imports, according to US Commerce Secretary Gina Raimondo.
People are no longer speculating that the Federal Reserve will raise interest rates by 75 basis points, and the Fed has backed off from a 50-basis-point hike in September, according to Chandler.
The major U.S. stock indexes rose, as did the major bourses in the United Kingdom, Germany, France, Italy, and Spain, which all ended the day up 1% or more.
The pan-European STOXX 600 index increased by 0.92 percent, while MSCI’s global stock index increased by 0.35 percent.
The Dow Jones Industrial Average fell 0.08 percent on Wall Street after briefly dipping lower. The S&P 500 increased by 0.20 percent, while the Nasdaq Composite increased by 0.25 percent. Growth stocks gained 0.3 percent, more than twice as much as value stocks, which gained 0.1 percent.
Treasury yields climbed as the market braced for the sale of $96 billion in debt this week, as well as data on Friday that is expected to show that US inflation remains high.
According to the median estimate of economists polled by Reuters, the consumer price index (CPI) increased 0.7 percent last month, compared to 0.3 percent in April, with annual inflation remaining unchanged at 8.3 percent.
As banks and investors prepare to absorb the issuance, the three US debt auctions this week are likely to push yields higher.
The yield on 10-year Treasury notes rose 8.5 basis points to 3.040 percent, marking the first time in almost three weeks that the benchmark’s yields have surpassed 3%.
President Christine Lagarde is expected to confirm an end to bond buying this month and a first rate hike in July at the ECB meeting on Thursday, though the jury is still out on whether it will be 25 or 50 basis points, as some investment banks have raised their expectations.
By the end of the year, money markets are pricing in 130 basis points of rate hikes, with a 50 basis point hike at a single meeting fully priced in by October.
With markets already pricing in half-point increases in June and July and nearly 200 basis points (bps) by the end of the year, a high number would only add to expectations of aggressive Fed tightening next week.
The dollar index increased by 0.23 percent to $1.0694, while the euro fell by 0.23 percent. The yen fell 0.73 percent to $131.85, while the pound rose 0.32 percent to $1.2528.
In choppy trade, oil prices remained largely unchanged, buoyed by Saudi Arabia’s increase in July crude prices but tempered by doubts that a higher output target for OPEC+ producers would alleviate tight supply. [O/R]
US Crude futures in the United States fell 37 cents to $118.50 a barrel, while Brent fell 21 cents to $119.51.
The dollar and Treasury yields rose, putting downward pressure on gold prices.
Gold futures in the United States fell 0.4 percent to $1,843.70 an ounce.