© Reuters. FILE PHOTO: People walk past an electronic screen showing Japan’s Nikkei stock price index inside a conference hall in Tokyo, Japan, on June 14, 2022. REUTERS/Issei Kato
By Herbert Lash and Amanda Cooper
NEW YORK/LONDON (Reuters) – Stock markets rose and the dollar fell on Monday, boosted by hopes that the U.S. economy is slowing enough for the Federal Reserve to ease the pace of rate hikes and continued speculation in China. May ease COVID restrictions.
Markets looked to past data showing China’s exports and imports unexpectedly contracted in October as China grapples with a COVID-19 clampdown, while a report on the US consumer price index on Thursday indicated that it will show very strong inflation.
U.S. stock indexes rose in choppy trading, with the focus on Tuesday’s midterm elections, which will determine whether Republicans are strong enough to take over Congress and underscore the tough odds for Democrats.
While a divided Congress is usually seen as good for markets, expectations that the US economy is losing enough momentum to slow the pace of Fed monetary tightening are driving the dollar lower, said Joe Manimbo, senior market analyst at Convera in Washington.
“The market is really desperate for the Fed to pivot,” Manimbo said. “It will take everything it can get in terms of signs that the economy is softening to maintain hope that a pivot will materialize sooner rather than later,” he said.
Slower inflation in Friday’s US jobs report alongside signs of a cooling labor market would be positive for risk appetite and negative, at least in the short term, for the dollar, Manimbo said.
The euro rose 0.34% to $0.9994 and the Japanese yen weakened 0.04% against the dollar at 146.68.
Major European indexes were mostly higher, except in London, where Wall Street was mostly higher as the Nasdaq bounced around the break.
MSCI’s world index of all countries gained 0.53%, and the broad European index gained 0.32%.
On Wall Street, it was up 0.51%, down 0.10% and 0.17%.
The dollar was also under pressure as traders held on to the idea that China could roll back some of its COVID restrictions after the government signaled on Monday that it would make it easier for people to enter and leave the capital.
Stephane Ekolo, strategist at Tradition in London, said the market is looking for an excuse to buy stocks.
“Although China has maintained its zero-COVID commitment, there are still those in the market who believe that China may relax its COVID-19 policy somewhat,” Ekolo said.
A strong October US jobs report last week ensured the Fed will be in no rush to move away from aggressive monetary policy tightening, a view that kept Treasury yields higher.
The yield on the two-year note, which typically tracks rate expectations, rose 7.8 basis points to 4.730%, while the 10-year yield rose 6 basis points to 4.218%.
Fed Chairman Jerome Powell last week quashed speculation that the US central bank might slow the pace of its monetary tightening, saying rates would likely stay higher for longer.
Average forecasts call for annual inflation to slow to 8.0% and core to 6.5%.
Oil prices rose to a two-month high on news that China, the world’s top crude importer, may take steps to reopen after years of strict COVID-19 restrictions, The Wall Street Journal reported, citing sources.
It rose 0.5% to $93.07 a barrel and was at $98.92, up 0.36% on the day.