Stocks Rally on China Covid, Powell; Dollar Slides: Markets Wrap

(Bloomberg) -- Stocks extended gains in Asia after China appeared to soften is Covid stance and Federal Reserve Chair Jerome Powell signaled a slowdown in the pace of interest-rate hikes.

The dollar fell against most of its Group-of-10 counterparts, with the yen speeding to a three-month high. Treasury yields stabilized after large declines following Powell’s comments.

US equity futures fluctuated while contracts for Europe climbed. Benchmarks in Hong Kong and mainland China traded more than 1% higher. The S&P 500 soared on Wednesday to end the month at the highest level since mid-September, led by a rally led by tech stocks. 

Sentiment in Asia got an extra China’s top official in charge of the fight against the coronavirus. Vice Premier Sun Chunlan said the country’s efforts to combat the virus are entering a new phase with the omicron variant weakening and more Chinese getting vaccinated.

Powell’s remarks affirmed expectations the Federal Reserve will raise interest rates 50 basis points this month in a departure from a run of four 75 basis point hikes. Pricing in the swaps market indicates the Fed funds rate will peak below 5% in May. Prior to Powell’s comments, the market anticipated a peak above that level occurring in June.

Equities were buoyed by Powell’s indication that the Fed would balance tackling inflation with supporting the economy, said Krishna Guha, head of central bank strategy for Evercore ISI.

“Most importantly for risk assets, Powell’s remarks embraced the return of some two-sided risk management. That is a big deal for equities and means an outsized move in stocks relative to the rates market is justified,” he said.

Others were more skeptical about the driver behind the market moves and pointed to the possibility month-end portfolio positioning had amplified the price action.

Traders also scoured several economic reports, with key gauges of US activity painting a mixed third-quarter picture. Job openings fell in October -- a hopeful sign for the Fed as it seeks to curb demand.

The figures precede Friday’s jobs report, which is currently forecast to show employers added 200,000 workers to payrolls in November. Economists are expecting the unemployment rate to hold at 3.7%, and for average hourly earnings to moderate.

Elsewhere in markets, oil fluctuated after three days of gains on China’s Covid developments and data showing a steep drop in US inventories.

Gold edged higher in Asia -- following a 1% advance on Wednesday.

Key events this week:

• S&P Global PMIs, Thursday
• US construction spending, consumer income, initial jobless claims, ISM Manufacturing, Thursday
• BOJ’s Haruhiko Kuroda speaks, Thursday
• US unemployment, nonfarm payrolls, Friday
• ECB’s Christine Lagarde speaks, Friday

Some of the main moves in markets:

Stocks

• Futures on the S&P 500 were little changed as of 12:27 p.m. Tokyo time. The S&P 500 rose 3.1%
• Nasdaq 100 futures were flat. The Nasdaq 100 rose 4.6%
• The Topix Index rose 0.2%
• The S&P/ASX 200 Index rose 0.8%
• The Hang Seng Index rose 1.1%
• The Shanghai Composite Index rose 0.7%
• Euro Stoxx 50 futures rose 1.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.3%
• The euro rose 0.2% to $1.0426
• The Japanese yen rose 0.9% to 136.79 per dollar
• The offshore yuan fell 0.3% to 7.0649 per dollar

Cryptocurrencies

• Bitcoin rose 0.3% to $17,149.79
• Ether fell 0.7% to $1,287.65

Bonds

• The yield on 10-year Treasuries advanced one basis point to 3.62%
• Australia’s 10-year yield declined four basis points to 3.49%

Commodities

• West Texas Intermediate crude fell 0.2% to $80.35 a barrel
• Spot gold rose 0.4% to $1,775.14 an ounce

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