LONDON, Dec 5 (Reuters) – European stock indices were mostly down on Monday, finding little support from the easing of domestic pandemic restrictions in China, after market sentiment was dampened by data on the employment in the United States on Friday which raised fears of persistent inflation.
Asian stocks had been boosted early on Monday by hopes that China’s moves to ease its zero-COVID policy would support global growth and boost demand for commodities.
More Chinese cities announced an easing of COVID-19 measures on Sunday, after protests against restrictions last weekend. The news boosted Chinese stocks and pushed the yuan past 7 to the dollar. MSCI’s broadest Asia-Pacific ex-Japan equity index rose 1.7% (.MIAPJ0000PUS).
But the impact on European markets was limited as investors were cautious about the scale of the reopening and remained focused on the prospect of central bank rate hikes. The MSCI World Equity Index, which tracks stocks from 47 countries, rose just 0.3% on the day (.MIWD00000PUS).
The European STOXX 600 was down 0.3% (.STOXX), the German DAX was down 0.6% (.GDAXI) but London’s FTSE 100 was up 0.2% (.FTSE).
“I think for a while we won’t know the true definition of zero-COVID because it’s changed and evolved very, very rapidly over the past two weeks,” said Eddie Cheng, head of multi-portfolio management. active at Allspring. Global investment.
The further easing “could add to stronger commodity demand, but we also need to see … how that plays out,” Cheng said.
China’s “zero-COVID” policies have weighed heavily on the world’s second-largest economy. Services activity fell to its lowest level in six months in November.
Market sentiment in Europe is still under pressure from “some inflationary forces,” Cheng said, particularly the region’s energy crisis.
Euro zone business activity fell for a fifth month in November, according to final PMI data, suggesting the economy was slipping into a mild recession.
November’s strong U.S. payrolls report hit Wall Street on Friday as it challenged hopes for a less aggressive stance from the Federal Reserve.
Futures for the S&P 500 and Nasdaq fell about 0.5% as investors waited for more data to provide clues on the Fed’s next move.
The euro rose 0.3% against the dollar to around $1.05735, while the US dollar index fell 0.1% to 104.31, after rallying after the Optimism over China’s easing of lockdown sent it to a five-month low earlier in the session.
Eurozone government bond yields fell, with Germany’s benchmark 10-year yield at 1.837%.
The European Central Bank is expected to raise interest rates by 50 basis points on December 15, French central bank chief Francois Villeroy de Galhau said on Sunday, bolstering expectations that the ECB will slow the pace of monetary tightening after consecutive increases of 75 basis points.
Investors’ attention remains focused on the pace at which central banks end their rate hike cycles. The Reserve Bank of Australia meets on Tuesday and is expected to raise rates by just 25 basis points. The Bank of Canada meets on Wednesday and is expected to raise rates by 50 basis points.
“We expect growth to replace inflation as the primary market objective at some point in the not-too-distant future,” Geraldine Sundstrom, portfolio manager at PIMCO, said in emailed comments.
“Central bank rhetoric is starting to point in that direction, but we won’t know until the inflation spike is firmly anchored in the mirror.”
Oil prices rose after OPEC+ countries kept production targets steady.
The Group of Seven’s price cap on Russian oil transported by sea went into effect on Monday as the West tries to limit Moscow’s ability to fund its war in Ukraine. Russia said it would not comply with the measure even if it had to cut production.
Reporting by Elizabeth Howcroft Editing by Peter Graff and Jane Merriman
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