Daily Management Review

Commodities And Stocks Rise As China Lifts Its Quarantine Rule


Tuesday's stock markets surged after China announced it would eliminate the COVID-19 quarantine requirement for incoming travellers, marking a significant step toward reopening its borders.
In contrast to an index of global shares, which increased by 0.2%, MSCI's broadest index of Asia-Pacific shares outside of Japan increased by 0.6%. Bluechip in China rose 1%.
The aggressive monetary policy tightening of central banks has severely impacted European equities, and the pan-European STOXX 600 index increased 0.5%, following the rally in Asia. This is a small gain compared to the nearly 12% it has lost this year.
As traders return to their terminals on Tuesday after the Christmas holiday, the market is expected to rise, according to U.S. stock futures, the S&P 500 e-minis, which increased 0.7%.
Some regions, including London, Dublin, Hong Kong, and Australia, continue to have closed markets.
Bond prices declined on Tuesday as yields, which move counter-clockwise to price, reached nine-week highs. German two-year yields reached their highest level since 2008 and were trading at around 2.489%, while Italian bond yields increased by 11 basis points to 4.622%.
According to Florian Ielpo, head of macro at Lombard Odier Investment Managers, European bond markets have not yet reached their peak rates because the European Central Bank (ECB) is lagging behind the U.S. Federal Reserve's jumbo rate increases.
According to him, the overall picture is bullish, citing prices on credit spreads and in larger derivatives markets. Since the beginning of October, the (.VIX), frequently used as a measure of risk aversion, has dropped 35% as investors have grown more certain that inflation has peaked.
"What we are seeing today, with a China rally and bullish prices in commodities futures, is what played out in the summer of 2008 and it looks to us like an end-of-a-cycle moment," Ielpo said.
"With a total decline of around 20% this year, it will take a minor miracle for 2022 to not be the weakest year for global stock markets since the financial crisis of 2008," said Lara Mohtadi, an analyst at SEB Bank.
"Last week we also saw the biggest rise in U.S. 10-year yields since April and on Friday trading ended at 3.75%," she said.
Tuesday saw a significant increase in the yield on Japanese government bonds (JGBs) with a two-year maturity as relatively low demand drove the yield to its highest level in more than seven and a half years.
Compared to a basket of major currencies, the dollar decreased by 0.1%. The euro increased slightly against the dollar to $1.066.
The New Zealand and Australian dollars, two commodities, also increased in value. Due to worries that winter storms across the United States were affecting the logistics and production of petroleum products and shale oil, oil prices increased despite light trading.
US West Texas Intermediate crude rose 0.8% to $80.22 per barrel, while Brent crude increased by 0.9% to $84.68 per barrel.
After a holiday on Monday, trading in U.S. Treasuries will resume on Tuesday. The benchmark 10-year yield increased last week by the most since the beginning of April, closing at about 3.75%.
The yield on two-year JGBs increased to 0.040%, its highest level since March 2015, before dropping to 0.030%.
In a report released on Friday, analysts from Citi warned of an upward risk that the Fed's benchmark interest rate could rise to 5.25% to 5.50% by the end of 2023.
They predicted that the labor market would continue to grow in the first quarter of 2023 despite being already very tight, which would increase pressure on wages and the cost of non-shelter services and force the Fed to raise rates more quickly.