Stocks rally even as growth and inflation fears persist

Pristine prices are displayed on the stock quotation boards of the Tokyo Stock Exchange (TSE) after the TSE temporarily suspended all trading due to system problems in Tokyo, Japan October 1, 2020. REUTERS/Issei Kato/Files

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LONDON, May 17 (Reuters) – Global stocks rallied on Tuesday on optimism over an easing of China’s crackdown on technology and COVID-19, but worries about rising prices and slowing global growth set a nervous tone elsewhere in the markets.

European equities got off to a positive start in Asia, with the STOXX index of Europe’s largest 600 stocks (.STOXX) up 1.7% and US equity futures, S&P 500 e-minis, suggesting that Wall Street would follow.

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) gained 2.5%, but the index is still down 16.8% so far this year.

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“There was a good session in Asia and, taking the S&P 500 as a guide, the US should be up around 1%…but looking ahead, markets remain obsessed with inflation and rate hikes,” said Philip Shaw, chief economist. at Investec in London.

“Headlines focus on higher inflationary pressures resulting directly from the conflict in Ukraine, or supply chain shortages resulting in part from lockdowns in China,” he said.

There were signs of jitters in bonds, currencies and commodities as fears for economic growth in the world’s two largest economies resurfaced following weak retail and factory figures in March. China and disappointing US manufacturing data. Read more .

An index compiled by US bank Citi that tracks whether economic data is better or worse than economists expected has returned to negative territory.

bad surprises

The New York Fed’s Empire State Manufacturing Index released on Monday showed a sharp drop in May and shipments fell at their fastest rate since the start of the pandemic. Read more

The yield on the benchmark 10-year Treasuries rose to 2.9185% from its U.S. close on Monday at 2.879%, while two-year yields, which rise on traders’ expectations of higher federal funds rate, reached 2.6195%.

Investors will look to a series of central bank policymakers speaking on Tuesday for further signs of the timing of rate hikes to fight inflation.

Scheduled speakers include US Federal Reserve Chairman Jerome Powell at 18:00 GMT, European Central Bank President Christine Lagarde and Bank of England Deputy Governor Jon Cunliffe.

Futures markets are pricing in consecutive increases of 50 basis points in June and July and the benchmark US interest rate reaching 2.75% by the end of the year. However, there are growing expectations that other central banks will catch up.

COIN HOLE

Currency and commodity markets were jittery amid profit taking from investors worried about pessimistic economic data.

The Turkish lira fell 2%, its biggest drop since January, as concerns over a global recession fuel selling pressure on the currency.

The US dollar index, which tracks the greenback against a basket of currencies, fell 0.35% to 103.8 as investors cashed in and reduced bets on US rate hikes generating new earnings. Read more

Europe’s single currency rose 0.4% on the day to $1.0475, after losing 0.96% in a month.

Oil rose to its highest level in seven weeks on Tuesday, buoyed by continued pressure from the European Union for a ban on Russian oil imports that would tighten supply and as investors focused on higher demand due to an easing of COVID lockdowns in China. Read more

Brent crude hit $115.14, its highest since March 28, while U.S. West Texas Intermediate (WTI) crude rose 63 cents to $114.84.

Gold prices firmed as the weaker dollar supported demand for bullion at the greenback price and countered pressure from the recovery in US Treasury yields. Spot gold traded up 0.2% at $1,827.44 an ounce.

Bitcoin appears to have at least temporarily stabilized at $30,295, following days of heavy losses in cryptocurrency markets following the price crash of several of the major so-called stablecoins.

BOOST CHINA

Hopes that China could ease two key sets of restrictions had created a positive mood in stocks early on Tuesday.

Shanghai has reached the long-awaited milestone of three consecutive days with no new COVID-19 cases outside quarantine zones, which could lead to the start of the city’s severe lockdown being lifted. Read more

Meanwhile, Chinese Vice Premier Liu He was due to speak at a meeting with technology leaders on Tuesday to promote the development of the digital economy, people familiar with the matter told Reuters. Read more

The meeting is being watched closely for clues about how far Chinese authorities will go to ease the regulatory crackdown in place since late 2020 on the previously high-flying tech sector.

Mainland China’s CSI300 index (.CSI300) gained 1.25% while Hong Kong’s Hang Seng index (.HSI) rose 3.27% as city-listed tech companies (.HSTECH) having jumped almost 6% on hopes that Beijing’s crackdown on the sector will be relaxed.

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Additional reporting by Scott Murdoch in Hong Kong; Editing by Lincoln Feast, Kirsten Donovan and Barbara Lewis

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