Stocks, commodities soar as China lifts quarantine rules

LONDON, Dec 27 (Reuters) – Stocks rose on Tuesday after China said it would lift its COVID-19 quarantine rules for incoming travelers – an important step in reopening its borders.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS ) rose 0.6 percent, outperforming its global index, which rose 0.2 percent. Chinese blue chips rose 1%.

The pan-European STOXX 600 index (.STOXX) rose 0.5%, tracking gains in Asian shares, which edged higher after falling nearly 12% this year as aggressive monetary tightening by central banks hit European stocks hard.

U.S. stock futures, the S&P 500 e-mini cap, rose 0.7%, pointing to gains as traders returned to terminals on Tuesday after the Christmas holiday.

Markets remained closed in some regions, including London, Dublin, Hong Kong and Australia.

Bonds fell in value as yields, which move inversely to prices, hit nine-week highs on Tuesday, with Germany’s two-year yield hitting around 2.489%, the highest since 2008, while Italy’s yield rose 11 basis points to 4.622 % .

Florian Ielpo, head of macro at Lombard Odier Investment Managers, said the European bond market has not yet reached peak interest rates, with the European Central Bank (ECB) lagging behind the Federal Reserve’s aggressive rate hikes.

The broader outlook looks bullish, he said, referring to credit spreads and prices in the broader derivatives market. The (.VIX), often seen as a safe-haven gauge, has fallen 35% since early October as investors grew more confident that inflation has peaked.

“What we’re seeing today, with Chinese stocks going up and commodity futures bullish, is what happened in the summer of 2008, and it looks like an end-of-cycle moment to us,” Ielpo said.

Lara Mohtadi, an analyst at SEB Bank, said: “With a total stock market decline of about 20% this year, it won’t be until 2022 that global stocks will be the weakest year since the 2008 financial crisis. It takes a small miracle.”

“Last week we also saw the biggest rise in U.S. 10-year yields since April, trading Friday at 3.75 percent,” she said.

Yields on two-year Japanese government bonds (JGB) jumped to their highest level in seven-and-a-half years on Tuesday, as auctions of bonds with the same maturity received relatively weak demand.

The dollar fell 0.1% against a basket of major currencies. EUR/USD rose about 0.25% to $1.066.

Commodity currencies such as the New Zealand and Australian dollars were also more

Oil prices rallied in thin trade amid concerns over U.S. winter storms affecting the logistics and production of petroleum products and shale more

Brent crude rose 0.9% to $84.68 a barrel, while U.S. West Texas Intermediate crude also rose 0.8% to $80.22 a barrel

U.S. Treasuries will resume trading on Tuesday after a public holiday on Monday. The benchmark 10-year Treasury yield posted its biggest gain since early April last week, closing around 3.75%.

The two-year JGB yield rose to 0.040%, the highest since March 2015, before falling to 0.030%.

Analysts at Citi pointed to upside risks in a note on Friday that the Fed’s policy rate could reach 5.25% to 5.50% by the end of 2023.

Their forecasts are largely based on expectations that the labor market will continue to add jobs in the first months of 2023, albeit already very tight, which will put further upward pressure on wages and non-housing service prices, requiring further Fed rate hikes Rapidly.

Reporting by Neil MacKenzie; Additional reporting by Xie Yu and Ankur Banerjee; Editing by Simon Cameron-Moore

Our Standards: The Thomson Reuters Trust Principles.

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