LONDON (Reuters) – European stock indices were mostly lower on Monday, finding little support from an easing of China’s domestic pandemic restrictions after market sentiment was dampened by Friday’s US jobs data that raised fears of persistent inflation.
Asian stocks were boosted early Monday on hopes that China’s moves to ease its zero-COVID policy would support global growth and boost demand for commodities.
More Chinese cities on Sunday announced easing of COVID-19 measures following protests over the past weekend’s restrictions. The news buoyed Chinese stocks and pushed the yuan above 7 per dollar. MSCI’s broadest index of Asia Pacific equities outside of Japan was up 1.7% (.MIAPJ0000PUS).
However, the impact on European markets was limited as investors cautiously assessed the extent of the reopening and continued to focus on the prospects for central bank rate hikes. The MSCI world stock index, which tracks stocks from 47 countries, rose by 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).
“I think we won’t know the true definition of zero-COVID for some time because it’s been changing and evolving very, very quickly over the past two weeks,” said Eddie Cheng, head of multi-asset portfolio management at Allspring Global Investments.
The new easing “could contribute to stronger demand for commodities, but we also need to see… how it plays out,” Cheng said.
China’s “zero-COVID” policy has weighed heavily on the world’s second largest economy. Service activity contracted to a six-month low in November.
Market sentiment in Europe is still under pressure from “some inflationary forces,” Cheng said, particularly the region’s energy crisis.
Business activity in the euro zone fell for a fifth month in November, the final PMI data showed, suggesting the economy is slipping into a mild recession.
The robust November US payroll report swept Wall Street on Friday as it questioned hopes for a less aggressive stance from the Federal Reserve.
Futures for the S&P 500 and Nasdaq were down about 0.5% as investors waited for more data that would provide clues to 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 recovering on optimism over China’s lockdown easing sent it to a five-month low early in the session.
Eurozone government bond yields eased, with the benchmark German 10-year yield coming in at 1.837%.
The European Central Bank was due to hike interest rates by 50 basis points on December 15, French central bank governor Francois Villeroy de Galhau said on Sunday, raising expectations that the ECB will slow the pace of monetary tightening after consecutive hikes of 75 basis points .
Investors’ attention remains focused on the pace at which central banks are exiting their rate-hiking cycles. The Reserve Bank of Australia meets on Tuesday and is expected to hike rates by just 25 basis points. The Bank of Canada meets on Wednesday and is expected to hike rates by 50 basis points.
“We anticipate that at some point in the not too distant future growth will replace inflation as the market’s primary objective,” said Geraldine Sundstrom, portfolio manager at PIMCO, in emailed comments.
“Central bank rhetoric is starting to point in that direction, but we won’t know for sure until peak inflation is solid in the review mirror.”
Oil prices rose after OPEC+ countries held production targets steady.
The Group of Seven price cap on Russian sea oil went into effect Monday as the West seeks to limit Moscow’s ability to fund its war in Ukraine. Russia has said it will not comply with the measure even if it has to cut production.
Reporting by Elizabeth Howcroft Editing by Peter Graff and Jane Merriman
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Elizabeth Howcroft
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