Chinese economic hopes are buoying world stocks, the Fed remains nervous

  • Stocks in Hong Kong, China hit 3-month highs
  • Dollar, oil stable
  • US PPI inflation data later on Friday

LONDON/SYDNEY (Reuters) – Global stocks rose on Friday on expectations that China’s economy would strengthen as COVID-19 containment eases, but stocks headed for a weekly 2% loss in jittery markets ahead of the Federal Reserve monetary policy meeting next week.

US S&P futures were up 0.18% while European stocks (.STOXX) were flat.

China’s Premier Li Keqiang said in comments from state media on Thursday that changing the country’s COVID-19 policy would allow the economy to pick up pace, a day after a high-level party meeting vowed to focus on stabilizing growth while optimizing the pandemic to focus dimensions.

Fed policymakers meet next week and are likely to announce a 50 basis point hike in the US Federal Reserve’s interest rate while hinting at a slower pace of future rate hikes.

“The market is very focused on what the Fed is going to do on Wednesday, no one wants to take big positions,” said Giles Coghlan, chief currency analyst at HYCM, but added that Chinese stocks have been supported by the fact that China is “embracing this COVID made pivot point”.

The MSCI world stock index (.MIWD00000PUS) rose 0.22%, while MSCI’s broadest index of Asia-Pacific stocks outside Japan gained 1.2% (.MIAPJ0000PUS), nearing a three-month high set earlier in the week was reached.

Japan’s Nikkei (.N225) rose 1.2%. The UK FTSE (.FTSE) shed 0.2% to an 11-day low, weighed down by energy stocks.

Hong Kong’s Hang Seng Index (.HSI) rose 2.3% to a three-month high, with mainland developers (.HSMPI) rising a whopping 9.9% to a four-month high. Chinese blue chips (.CSI300) rose 1% to the highest level in almost three months.

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The world’s largest investment banks expect global economic growth to slow further in 2023, after a year marked by the Ukraine conflict and rising inflation that triggered one of the fastest monetary tightening cycles in recent memory.

The US Final Demand Producer Price Index later on Friday is expected to show a 7.2% rise in the 12 months to October, up from 8% last month ahead of closely watched CPI data next week.

Sentiment data from the University of Michigan is also due later on Friday.

Thursday’s data showed some easing in the US jobs market, with weekly jobless claims rising moderately.

Futures have priced in a near-certain possibility that the Fed will slow its rate hike to 50 basis points next week, but the US federal funds target would need to peak around 4.9% by next May.

“This slowdown is not a signal that the central bank’s job is almost done…the slower pace of rate hikes heralds a new phase in the Fed’s tightening cycle,” said Brian Martin, head of G3 economics at ANZ.

“With inflation proving sticky and the labor market still buoyant, the risks to our 5.00% forward forecast are to the upside.”

In addition to the Fed, the European Central Bank and Bank of England are also set to announce interest rate decisions next week as policymakers continue to slow economic growth by tightening interest rates to thwart stubbornly high inflation.

The US dollar was steady against a basket of major currencies on Friday. It weakened 0.3% against the Japanese yen to 136.28 yen.

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The euro was flat against the greenback at $1.0557, below the recent five-month high of $1.0594.

The benchmark 10-year Treasury note yield fell 2 basis points to 3.4760%. The two-year yield weakened 3 basis points to 4.28%.

Treasury yields fell to a three-year low earlier in the week on expectations of slower growth or that a recession will dampen rises in US interest rates.

10-year German government bond yields, the benchmark for the eurozone, rose 3 basis points to 1.85%.

Commodity prices rallied, with iron ore prices rising 4.7% to a six-month high on hopes of improved demand from China.

Oil remained stable as the closure of a major crude oil pipeline between Canada and the US disrupted supplies, but both benchmarks headed for weekly losses on concerns about slowing global demand growth.

U.S. West Texas Intermediate (WTI) crude oil futures fell 0.1% to $71.43 a barrel, while Brent crude remained steady at $76.09 a barrel.

Spot gold rose 0.1% to $1791.59 an ounce.

Edited by Jacqueline Wong, Kim Coghill and Simon Cameron-Moore

Our standards: The Thomson Reuters Trust Principles.

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