Stocks rally, dollar slides as sentiment favors risky assets

  • Eyes turn to US midterm election result
  • Fed policy outlook keeps rates high and dollar weak
  • Beijing seen easing some COVID-19 restrictions
  • Oil pulls back with commodities on China outlook

NEW YORK/LONDON, Nov 7 (Reuters) – Stock markets rose and the dollar fell on Monday as investors embraced the idea that China could ease COVID restrictions and revive hopes that the U.S. economy will slow. enough to allow the Federal Reserve to ease its aggressive interest rate hike.

Markets topped both data showing Chinese exports and imports unexpectedly contracted in October as China grapples with COVID-19 restrictions and the likelihood that the US consumer price index of Thursday shows that inflation remains high.

U.S. stocks rallied as investors weighed the outcome of Tuesday’s midterm elections. The vote will determine whether Republicans are strong enough to take control of Congress and will likely underscore the difficult outlook for Democrats.

“On a day-to-day basis, the market is focused on headlines and what’s immediately ahead of us, and that’s the election,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

“What might or might not happen with the election doesn’t have such a big influence on the market. The big influences are the Fed and what’s happening in Ukraine and Russia,” he said.

Major European indices mostly closed higher, except for the FTSE 100 (.FTSE) in London, while Wall Street rebounded late in the session after a choppy start to the session.

MSCI All Country World Index (.MIWD00000PUS) gained 1.14%, and the broad pan-European STOXX 600 index (.STOXX) increased by 0.33%.

On Wall Street, the Dow Jones Industrial Average (.DJI) rose 1.31%, the S&P 500 (.SPX) gained 0.96% and the Nasdaq Composite (.IXIC) advanced by 0.85%.

While a divided Congress is generally seen as good for markets, hopes that the U.S. economy will lose enough momentum for the Fed to slow the pace of monetary tightening has pushed the dollar lower, Joe Manimbo said. , principal market analyst at Convera in Washington.

“The market is really desperate for the Fed to pivot,” Manimbo said. “It will take all it can get in terms of signs of a slowing economy to keep hope alive that a pivot could materialize sooner rather than later,” he said.

A slowdown in inflation on the heels of signs from Friday’s October US jobs report that the labor market is cooling would be positive for risk appetite and negative, at least in the short term, for the dollar, Manimbo said.

The euro rose 0.61% to $1.0021 and the Japanese yen strengthened 0.01% against the dollar to 146.60.

The dollar was also under pressure as traders clung to speculation that China may be easing some of its COVID restrictions after the government indicated on Monday it would make it easier for people to enter and exit the capital.

Stéphane Ekolo, strategist at Tradition in London, said the market was looking for an excuse to buy shares.

“Although China stands by its zero COVID commitment, some in the market still believe that China may relax its COVID-19 policy somewhat,” Ekolo said.

The relatively strong US jobs report last week ensured the Fed would be in no rush to ease policy, although the pace of rate hikes may slow as US central banks keep rates higher. longer, a view that has pushed Treasury yields higher.

The median forecast calls for annual US inflation to slow to 8.0% and the core to dip a notch to 6.5%.

The two-year bond yield, which generally moves in line with rate expectations, rose 7 basis points to 4.722%, while the 10-year yield rose 6 basis points to 4.218%.

A closely watched part of the yield curve measuring the spread between two- and 10-year bond yields, seen as a harbinger of recession when the short end is higher than the long end, has gone deep. reversed to -50.6 basis points.

Oil prices hit a more than two-month high after news that China, the world’s top crude importer, may take steps to reopen after years of tight COVID restrictions, the Wall Street Journal reported. citing sources.

U.S. crude fell 82 cents to $91.79 a barrel, while Brent was down 65 cents to $97.92 a barrel.

Gold prices stabilized near a three-week high hit on Friday, supported by a weaker dollar as investors awaited the CPI report that could influence Fed interest rate policy .

US gold futures > rose 0.2% to $1,680.50 an ounce.

Bitcoin fell 0.55% to $20,791.00.

Additional reporting by Stefano Rebaudo in Milan and Wayne Cole in Sydney; Editing by Ed Osmond, Tomasz Janowski, Chizu Nomiyama and Richard Chang

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