European shares and US stock futures 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, but remained 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.
Futures trading implied Wall Street’s S&P 500 would add 1.1 per cent at the New York open, after the blue-chip stock index fell for eight of the last nine weeks. Contracts tracking the technology-heavy Nasdaq 100 added 1.5 per cent.
The S&P is down almost 14 per cent so far this year while the Nasdaq Composite has dropped 23 per cent, after inflation hit consumer-facing businesses and spurred the Federal Reserve to signal aggressive rate rises, along with plans to drain liquidity from the financial system via quantitative tightening.
The market mood brightened on Monday, however, after Chinese state media said public transport and restaurant dining would reopen in Beijing, sparking hopes of an end to draconian lockdowns that have slowed the world’s second-largest economy and strained global supply chains. A contraction of China’s services sector also eased in May, a closely watched business activity survey showed on Monday.
“For China to come out of [lockdowns]will make a big difference,” said Neil Birrell, chief investment officer at Premier Miton Investors. “It will also help stimulate global trade.
“But in my view I don’t think we’ve hit the bottom” of the stock market downturn, he added.
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 ahead of UK prime minister Boris Johnson facing a vote of no confidence in his leadership on Monday.
The euro added 0.1 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 0.05 percentage points to 3.36 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.
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.
