Global markets’ surge buoyed by optimism over China’s reopening

Global stock markets mostly rallied Wednesday as investors were buoyed by optimism over China’s reopening and looming data expected to show a further slowdown in US inflation.

Investors brushed off warnings that US interest rates would continue to rise, as well as the World Bank’s downgrade to its global growth forecast.

Asian and European equities mainly fizzed higher and Wall Street stocks also rose after opening, as the tech-heavy Nasdaq advanced for a third day.

“An upside bias is winning out thus far based on a prevailing view that weakening economic activity and fading inflation will help the Fed realise that it does not need to raise rates much further,” market analyst Patrick O’Hare at Briefing.com said.

After wavering on Tuesday, markets resumed the upward push that has characterised the start of the year thanks to China’s emergence from nearly three years of zero-Covid isolation.

The reopening, easing of Beijing’s tech crackdown and moves to help the property sector have raised hopes for the world’s number-two economy, a crucial driver of world growth.

“Many investors are starting to believe China’s reopening could be faster than expected on pent-up demand, a robust economic rebound and fewer supply constraints,” noted SPI Asset Management analyst Stephen Innes.

Focus this week is on Thursday’s US consumer price index, which is expected to show that price gains eased further in December.

But while that could possibly allow the Federal Reserve to take a lighter approach to its monetary tightening campaign, policymakers continue to push back against any pivot away from rate hikes.

In London on Wednesday, shares in JD Sports topped the FTSE 100 index, jumping more than six percent after the retailer posted upbeat Christmas sales.

But Sainsbury dropped more than two percent after the supermarket group also logged rising festive sales -- but cautioned over the impact of the cost-of-living crisis.

Housebuilder Barratt Developments meanwhile slid 0.2 percent after it warned of a “marked slowdown” in the UK housing market, hit partly by economic uncertainty and rising home loan interest rates.

Cyber security firm Darktrace saw its share price tank more than 13 percent after cutting its annual revenue forecast due to the souring economic climate.

In Paris, shares in French luxury giant LVMH rose 2.3 percent after owner Bernard Arnault announced his daughter Delphine would head the empire’s Dior fashion house, in a leadership reshuffle also featuring a new CEO at flagship brand Louis Vuitton.

Oil prices rose on Wednesday as hopes for an improved global economic outlook and concern over the impact of sanctions on Russian crude output outweighed a higher than expected build in US crude and fuel stocks.

Brent crude futures were up $1.48, or 1.9%, at $81.58 a barrel by 1436 GMT. US and West Texas Intermediate (WTI) crude futures rose $1.35, or 1.8%, to $76.47.

Both contracts registered gains on Monday and Tuesday, rebounding from a sharp sell-off in the first week of 2023.

Global equities were up slightly on Wednesday on hopes that US inflation and earnings figures due on Thursday point to a resilient economy and slower pace of interest rate hikes.

If inflation comes in below expectations, that would drive the dollar lower, analysts said, which could boost oil demand because it makes the commodity cheaper for buyers holding other currencies.

Some of the market’s optimism was pinned on top oil importer China’s reopening of its economy after the end of strict COVID-19 curbs.

“China could bounce back strongly, especially if backed by monetary and fiscal stimulus. Central banks may discover they have room to cut rates if inflation falls substantially and economies are in recession,” said Craig Erlam, a senior market analyst at OANDA in London.

“(Also) Russian output could be squeezed as sanctions take their toll.”

An international price cap imposed on sales of Russian crude took effect on Dec. 5 and more curbs aimed at products sales are set to come into force next month.

US crude oil stockpiles, meanwhile, jumped by 14.9 million barrels in the week ended Jan. 6, sources said, citing data from the American Petroleum Institute (API).

Analysts polled by Reuters had expected crude stocks to fall. Traders will be looking out for inventory data from the U.S. Energy Information Administration, expected at 1530 GMT.  Copper prices moved above $9,000 a tonne on Wednesday for the first time since June on hopes that Chinese demand will rebound after the country removed its COVID-19 restrictions.

Also helping was a weaker dollar. The greenback has fallen to a seven-month low due to expectations that U.S. interest rates will soon stop rising, making dollar-priced metals more affordable for buyers with other currencies.

Benchmark copper on the London Metal Exchange (LME) was up 1.1% at $9,013.50 a tonne at 1150 GMT, its fifth consecutive daily gain.

The metal used in power and construction has risen around 8% already this year.