US futures rise as Chinese stocks shrug off protest concerns

Chinese equities rebounded sharply on Tuesday as investors bet that Beijing would press on with easing its tough Covid-19 policies in spite of the government’s commitment to keeping its hardline measures.

Hong Kong’s Hang Seng index soared 5.2 per cent following a 1.6 per cent slump in the previous session, while China’s CSI 300 added 3.1 per cent.

In New York, contracts tracking Wall Street’s benchmark S&P 500 gained 0.3 per cent while those tracking the tech-heavy Nasdaq 100 traded 0.5 per cent higher.

The moves, which were also reflected in European stocks, came despite the imposition of a fresh round of business closures and quarantines of close coronavirus contacts in Shanghai, and as the country reels from widespread demonstrations against President Xi Jinping’s stringent lockdown measures.

“The direction of reopening is very clear, in our view, and we don’t think the government will double down on pandemic control measures,” said Xiangrong Yu, an analyst at Citi.

“We maintain our base case that reopening will gain momentum post the National People’s Congress [in March] next year, and see higher risk of an accelerated reopening,” he said.

Although some of the “front-loading” by investors into Chinese equities with low valuations had reversed thanks to “skittish” market sentiment, China was likely to stick with its zero-Covid measures until at least next year, and despite the protests, said Mitul Kotecha, head of emerging markets strategy at TD Securities.

“Ultimately, there’s nothing here yet that changes the perspective of investors,” Kotecha added.

US equities have rallied this month but sold off on Monday on what Neil Shearing, chief economist at Capital Economics, described as a “risk-off” session for investors.

Investors were alert to hawkish comments from John Williams, president of the Federal Reserve Bank of New York, who warned on Monday that US unemployment could rise from its current level of 3.7 per cent to between 4.5 and 5 per cent by the end of next year.

The Fed funds futures market now assigns a 63 per cent probability to the central bank raising rates by 0.5 percentage points in December — potentially ending a run of four consecutive 0.75 percentage point increases — but Williams stressed that officials had plenty of work to do in their battle to bring inflation back down to 2 per cent.

“Inflation is far too high, and persistently high inflation undermines the ability of our economy to perform at its full potential,” he said in a statement. Those concerns were echoed by James Bullard, president of the St Louis branch of the Federal Reserve, who said on Monday that the central bank’s aggressive monetary tightening was not yet finished.

Elsewhere in equity markets, Europe’s regional Stoxx 600 rose 0.2 per cent, having lost 0.6 per cent on Monday, while London’s FTSE 100 rose 0.7 per cent.

Data out on Tuesday morning showed consumer price inflation in Germany’s North Rhine-Westphalia region, the country’ most important industrial area, fell more than expected, dropping from 10.5 per cent in October to 10 per cent in November.

The figures sparked a rally in European government bond markets, with the rate-sensitive two-year German bond yield falling 0.12 percentage points to 2.04 per cent. The equivalent bond yields in France, Italy and Spain also fell. Yields fall as prices rise.

Oil prices, meanwhile, rose on Tuesday, with international benchmark Brent crude oil up 2.8 per cent at $85.54 a barrel, after declining 0.5 per cent in the previous session.