Stocks and Commodities Soar as China Lifts Quarantine Regulation

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On December 20, stock markets rose as China announced it would eliminate the COVID-19 quarantine requirement for incoming travellers starting January 8, marking a significant step toward reopening its borders.

The aggressive monetary policy tightening of central banks has severely impacted European equities, and the pan-European STOXX 600 index increased 0.5 per cent following the recovery in Asia. 

The European Central Bank (ECB) is trailing behind the U.S. as interest rate peaking in European bond markets. Florian Ielpo, head of the macro at Lombard Odier Investment Managers, asserts that the jumbo rate of the Federal Reserve is rising.

Stocks and Commodities

“What we are seeing today, with a China rally and bullish prices in commodities futures, is what played out in the summer of 2008, and it looks like an end-of-a-cycle moment,” Ielpo said.

Meanwhile, the S&P 500 e-minis increased 0.7 per cent, signalling that the market will advance when traders resume trading after the Christmas holiday.

Bond prices dropped as yields moved opposite price and reached nine-week highs on December 20. Italian bond yields increased by 11 basis points to 4.622 per cent, while two-year German yields reached their highest level since 2008 to trade at roughly 2.489 per cent.

“With a total decline of around 20 per cent this year, it will take a minor miracle for 2022 not to be the weakest year for global stock markets since the financial crisis of 2008,” said Lara Mohtadi, a SEB Bank analyst.

According to Citi analysts, who warned of an upside risk in a report on Friday, the Fed’s policy interest rate may rise to between 5.25 per cent and 5.50 per cent by the end of 2023.

Their projection was partly based on the assumption that the labour market will continue to grow in the first quarter of 2023 while being already highly tight. This would increase pressure on wages and non-shelter service prices and necessitate the Fed raising rates more quickly.

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