Markets rise on health easing in China and vision of a dovish Fed

The climate of euphoria continues with a global rebound in the financial market. The signs of relaxation of the Covid Zero policy in China provide even more fuel to the appreciation of assets, which has been driven since yesterday by the slowdown in inflation in the United States. The indicator presented the lowest variation since January and gives investors the perspective that the Federal Reserve (Fed) could reduce the pace of increases in interest rates in the country in the next meetings.

The factors that guide the markets:

INFLATION SLOWS DOWN

Several Fed members spoke Thursday and provided softer language after the CPI showed inflation slowing. The speeches showed relief with the indicator and indicated moderation, although they reaffirmed the Fed’s commitment to return inflation to the target. The market is more confident that the interest rate could rise at a slower pace from the next central bank meeting, by 0.50 percentage point, to 4.8% next year.

CAN CHINA REOPEN?

The easing of China’s Covid Zero policy was first broached in public by Chinese leaders, who called on the country’s authorities to take a more targeted approach to controls. Beijing has cut the quarantine time required for travelers and close contacts to five days, a move seen by investors as a first step toward easing the restrictive policy.

Commodity prices react upwards to the possibility of a reopening. Chinese markets reacted strongly to the signals with some stock indices rising more than 8% during the session. Local currencies appreciated while the dollar fell, reaching levels not seen since 2009.

THE UK CONTRACTS

UK GDP fell -0.2% in the third quarter, marking the start of what is expected to be a long recession in the country. Although the decline was less intense than expected (-0.5%), it was the first contraction since the first quarter of 2021 and investors are looking at the scenario with concern while awaiting the government’s fiscal package, which will be announced on the 17th.

EU IS MORE PESSIMISTIC

This morning, the European Commission has also outlined a gloomy scenario for the region’s economy, given worsening conditions due to rising energy prices and uncertainties in the external environment, where several economies are facing problems. The bloc’s inflation, which reached +10.7% in October, should close this year with an average of +8.5% and +6.1% in 2023. In the case of GDP, although the estimate for it rose to +3.2%, the projection for 2023 was cut from +1.4% to +0.3%.

STOCKS YESTERDAY (10)

Dow Jones Industrials (+3.70%), S&P 500 (+5.54%), Nasdaq Composite (+7.35%), Stoxx 600 (+2.75%).

Stock markets in the United States closed with a strong rebound fueled by the prospect that the Fed may reduce its aggressive policy of monetary tightening in the short term after the release of the October inflation data. The report of consumer prices indicated that headline inflation reached 7.7%, the lowest figure since January. More than 90% of S&P 500 stocks ended the day in the green.

INVESTORS AGENDA

These are the events scheduled for today:

• US: Consumer Sentiment and Inflation from the University of Michigan/Nov

• Europe: Euro Zone (Economic Projections); United Kingdom (GDP 3Q22); Germany (CPI/Oct); Portugal (CPI/Oct)

• Asia: Hong Kong (GDP 3Q22)

• Latin America: Brazil (Growth of the Services Sector/Sept); Mexico (Industrial Production/Sept)

• Central Banks: Speeches by Luis de Guindos, Fabio Panetta and Philip Lane (ECB), Silvana Tenreyro (BoE), Joachim Nagel (Bundesbank)

For Monday:

• US (OPEC Monthly Report, Fed-NY Consumer Inflation Expectations) Eurozone (Industrial Production/Sept); Japan (3Q22 GDP); China (Industrial Production/Oct, Retail Sales/Oct, Fixed Asset Investment/Oct); Brazil (IBC-Br/Sept); The balance sheets (Mitsubishi, Sumitomo, Mizuho, ​​Tyson Foods, Nubank, BuzzFe, Gafisa)

With information from Bloomberg News