US futures rise as Chinese stocks ignore protest concerns

Chinese stocks rebounded strongly on Tuesday as investors bet that Beijing would continue easing its strict Covid-19 policies despite the government’s pledge to maintain its strict measures.

Hong Kong’s Hang Seng index climbed 5.2% after falling 1.6% in the previous session, while China’s CSI 300 rose 3.1%.

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

The movements, which were also reflected in Europe actionscame despite the imposition of a new round of business closures and quarantines of close contacts with the coronavirus in Shanghai, and as the country reels from widespread protests against the president’s strict lockdown measures Xi Jinping.

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

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

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

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

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

Investors have been paying attention to hawkish comments from John Williams, president of the Federal Reserve Bank of New York, who warned on Monday that Unemployment in the United States could rise from its current level of 3.7% to 4.5-5% by the end of next year.

The fed funds futures market now assigns a 63% probability that the central bank will raise rates by 0.5 percentage points in December – potentially ending a streak of four consecutive increases of 0.75 percentage points – but Williams stressed that officials had a lot of work to do in their battle to bring inflation back to 2%.

“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, chairman of the St Louis branch of the Federal Reserve, who said on Monday that the central bank’s aggressive monetary tightening was not yet over.

Elsewhere in the stock markets, the European regional Stoxx 600 rose 0.2%, after losing 0.6% on Monday, while London’s FTSE 100 rose 0.7%.

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

The figures sparked a rally in European government bond markets, with the yield on German two-year rate-sensitive bonds falling 0.12 percentage points to 2.04%. 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 rising 2.8% to $85.54 a barrel, after falling 0.5% in the previous session.