European markets slip, China eases pandemic measures

LONDON, Dec 5 (Reuters) – European stock indexes were mostly lower on Monday, finding little support from an easing of China’s domestic pandemic restrictions, after sentiment market was subdued by US jobs data on Friday that raised fears of persistent inflation.

Asian shares were boosted early on Monday on hopes that China’s moves to ease its zero-Covid policy would support global growth and increase demand for commodities.

More Chinese cities announced easing of COVID-19 measures on Sunday, following protests against restrictions last weekend. The news boosted Chinese stocks and pushed the yuan to over 7 per dollar. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.7% (.MIAPJ0000PUS).

But the impact on European markets was limited as investors were cautious about the extent of the reopening and remained focused on the prospects for central bank rate hikes. The MSCI world equity index, which tracks shares in 47 countries, was up just 0.3% on the day (.MIWD00000PUS).

Europe’s STOXX 600 was down 0.3% (.STOXX), Germany’s DAX was down 0.6% (.GDAXI) but London’s FTSE 100 was up 0.2% (.FTSE).

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“I think for a while we won’t know the real definition of zero-COVID because it’s been changing and evolving very quickly in the last two weeks,” said Eddie Cheng, head of multi-asset portfolio management at Allspring. Global Investment.

The new cuts “may add to stronger demand for raw materials but we also have to see … how it evolves,” Cheng said.

China’s “zero-COVID” policies have weighed heavily on the world’s second-largest economy. Services activity fell to a six-month low in November.

Market sentiment in Europe remains under pressure from “some inflationary forces,” Cheng said, particularly the region’s energy crisis.

Eurozone business activity fell for a fifth month in November, final PMI data showed, suggesting the economy was slipping into a mild recession.

The robust November US payrolls report rattled Wall Street on Friday as it defied hopes for a less aggressive stance from the Federal Reserve.

Futures for the S&P 500 and the Nasdaq were down about 0.5%, as investors waited for more data to provide clues about the Fed’s next move.

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The euro was up 0.3% against the dollar, at around $1.05735, while the US dollar index was down 0.1% at 104.31, recovering after optimism over the easing of the lockdown – China sent it to a five-month low earlier in the session.

Eurozone government bond yields fell, with the benchmark German 10-year yield at 1.837%.

The European Central Bank should raise interest rates by 50 bps on December 15, French central bank chief Francois Villeroy de Galhau said on Sunday, boosting expectations for the ECB to slow the pace of monetary tightening after back-to-back increases of 75 bp.

Investors’ attention remains focused on the pace of central banks ending their rate hike cycles. The Reserve Bank of Australia meets on Tuesday, and is expected to raise rates by a mere 25 basis points. The Bank of Canada meets on Wednesday and is expected to raise rates by 50 bps.

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“We expect growth to replace inflation as the market’s main focus at some point in the not-too-distant future,” Geraldine Sundstrom, portfolio manager at PIMCO, said in emailed comments.

“The central bank’s rhetoric is starting to point in that direction, but we won’t know for sure until peak inflation is firmly in the review mirror.”

Oil prices rose after OPEC+ nations kept their production targets firm.

The Group of Seven price cap on Russian offshore oil came into force on Monday as the West tries to limit Moscow’s ability to finance its war in Ukraine. Russia has said that it will not abide by the measure even if it has to reduce production.

Reporting by Elizabeth Howcroft Editing by Peter Graff and Jane Merriman

Our Standards: The Thomson Reuters Fiduciary Principles.

Elizabeth Howcroft

Thomson Reuters

Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds and the money that drives “Web3”.

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