Stocks and commodities jump as China abandons quarantine rule

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LONDON, Dec 27 (Reuters) – Stock markets soared on Tuesday after China said it would scrap its COVID-19 quarantine rule for arriving travelers – an important step in reopening its borders.

MSCI’s Broader Index of Asia Pacific Stocks Outside Japan (.MIAPJ0000PUS) rose 0.6%, outperforming the Global Stocks Index, which rose 0.2%. China’s bluechip gained 1%.

The pan-European STOXX 600 (.STOXX) index rose 0.5% following the rally in Asia, a small gain against the nearly 12% it lost this year as aggressive monetary tightening by central banks has hit European equities hard. .

US stock futures, the S&P 500 e-minis, were up 0.7%, indicating the market is set to rise as traders return to their terminals on the Tuesday after the Christmas break.

Markets in some regions, including London, Dublin, Hong Kong and Australia, remain closed.

Bonds fell in value as yields, which move inversely to price, hit nine-week highs on Tuesday, with German two-year yields at their highest since 2008, trading around 2.489%, while Italian bond yields rose 11 basis points to 4.622%. 🇧🇷

European bond markets have yet to reach peak rates, with the European Central Bank (ECB) lagging behind huge rate hikes from the US Federal Reserve, according to Florian Ielpo, head of macro at Lombard Odier Investment Managers.

The broader picture looks optimistic, he said, pointing to prices on credit spreads and in broader derivatives markets. The (.VIX), often seen as an indicator of risk aversion, has dropped 35% since the start of October as investors grew more confident about peak inflation.

“What we are seeing today, with a rise in China and high prices in commodity futures, is what happened in the summer of 2008 and it seems to us to be the end of the cycle,” said Ielpo.

“With a total drop of around 20% this year, it will take a small miracle for 2022 not to be the weakest year for global equity markets since the 2008 financial crisis,” said Lara Mohtadi, an analyst at SEB Bank.

“Last week also saw the biggest rise in US 10-year yields since April and on Friday trade ended at 3.75%,” she said.

Yields on two-year Japanese government bonds (JGBs) jumped to the highest level in more than seven-and-a-half years on Tuesday, as an auction for the notes of the same maturity met with relatively weak demand.

The dollar was down 0.1% against a basket of major currencies. The euro was up about 0.25% against the dollar to settle at $1.066.

Commodity currencies such as the New Zealand and Australian dollar also rose. see more information

Oil prices rose on weak trade, on concerns that winter storms in the United States were affecting logistics and production of petroleum products and shale oil. see more information

Brent crude was up 0.9% to $84.68 a barrel, while US West Texas Intermediate crude was also up 0.8% to $80.22 a barrel.

US Treasuries will resume trading on Tuesday after a holiday on Monday. The 10-year benchmark yield rose the most in the past week since early April, ending around 3.75%.

The two-year JGB yield rose to 0.040%, the highest since March 2015, before falling to 0.030%.

Analysts at Citi flagged upside risk in a report on Friday that the Fed’s benchmark rate could reach 5.25% to 5.50% by the end of 2023.

His forecast was largely based on expectations that the labor market would continue to create jobs in the first few months of 2023, despite already being very tight, which would put further pressure on wages and the prices of non-housing services, requiring as soon as the Fed raised rates further. quickly.

Reporting by Nell Mackenzie; Additional reporting by Xie Yu and Ankur Banerjee; Edited by Simon Cameron-Moore

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