SYDNEY/LONDON (Reuters) – Stock markets extended their rally last week in a more modest fashion on Monday after a top US central banker warned investors not to drift around single-digit inflation, while Chinese stocks rose with the support of the country’s real estate sector. .
The modest inflation failure in the US was enough to see two-year Treasury yields drop by 33 basis points for the week and the dollar lost nearly 4% – the fourth-largest weekly decline since the era of free-floating exchange rates began more than 50 years ago.
However, the Fed has not fully welcomed the easing caused by US financial conditions, with Governor Christopher Waller saying on Sunday that it will take a series of soft reporting for the bank to undo the brakes.
Waller added that markets were way ahead of themselves on just one inflation reading, although he conceded that the Fed could now begin to consider raising rates at a slower pace.
Futures are betting heavily on a half point rate rise to 4.25-4.5% in December, then quarter point moves to a peak in the 4.75-5.0% range.
Two-year bond yields fell to 4.39%, after diving as deep as 4.29% on Friday.
Bruce Kasman, head of economic research at JPMorgan, said, “The downside surprise for the CPI aligns with a broad range of indicators pointing to a shift in global inflation that would encourage a moderation in the pace of monetary policy tightening at the Fed and elsewhere. other”.
“This positive message should be tempered by acknowledging that the downward regression in inflation will be too small for central banks to declare their mission accomplished, and more tightening is likely on the way.”
The European benchmark STOXX rose 0.37% (.stoxx)and the broadest MSCI Asia Pacific stock index outside Japan (MIAPJ0000PUS.) It added 0.73% after jumping 7.7% last week.
US markets looked set to open lower, with S&P E-mini futures down 0.26%.
eyes on china
Traders were also waiting to see if Chinese stocks could extend their massive rally amid reports that regulators have asked financial institutions to provide more support for stressed property developers. Read more
China real estate index (CSI000952). A 3.5% response jumped. blue chips (.CSI300) It rose 1%, buoyed by a slew of changes to China’s COVID restrictions, even as the country reported more cases over the weekend. Read more
“It is hard to see how the case news is not negative from an economic point of view, but the symbolism of the movement, however small, in the zero COVID strategy is what delights the markets with,” said Ray Atrell, Head of FX Strategy. in NAB.
Supporting the real estate sector in China, which consumes a huge amount of metals, boosted copper towards its highest level in five months. Three-month copper on the London Metal Exchange (LME) was up 0.3% at $8,519 a ton by 0725 GMT.
US President Joe Biden will meet Chinese leader Xi Jinping in person on Monday for the first time since taking office, with US concerns about Taiwan, the Russian war in Ukraine and North Korea’s nuclear ambitions high on his agenda.
The news about COVID rules sent the yuan rebounding in short-covering, adding to broad pressure on the dollar as yields plummet. The yuan gained 1.4 percent on Monday – the largest such move since 2005.
The dollar index fell slightly on Monday at 106.69, still well below last week’s high of 111.280.
The euro slipped slightly to $1.0308 after rising 3.9% last week, while the dollar settled to 139.56 yen after losing 5.4% last week.
The dollar lost nearly as much against the Swiss franc, spurred in part by warnings from the Swiss National Bank that it would use interest rates and currency purchases to tame inflation.
Sterling slipped back to $1.1755 ahead of the British chancellor’s autumn statement on Thursday, as it is expected to set tax increases and spending cuts.
Cryptocurrencies remained under pressure as at least $1 billion in client funds was reported to have disappeared from collapsed cryptocurrency exchange FTX.
Bitcoin recovered 2.9% at $16,785, after falling nearly 22% last week.
Oil prices pared earlier gains and fell on Monday, after a firmer US dollar offset hopes of boosting Chinese demand. Brent crude futures were down 32 cents, or 0.3 percent, at $95.67 a barrel by 0725 GMT, after settling at 1.1 percent on Friday.
(Reporting by Wayne Cole and Lawrence White) Editing by Shree Navaratnam, Kenneth Maxwell, William MacLean
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