Stocks extended a global rally in risk assets, driven by China’s reopening trade and expectations of slower rate hikes. The dollar weakened.

Most Read from BloombergGoldman to Cut About 3,200 Jobs This Week After Cost ReviewBrazil Capital Reels From Rioters Who Stormed CongressUkraine Latest: Zelenskiy Says Extra Troops Will Defend BakhmutPutin’s Energy Gambit Fizzles as Warm Winter Saves EuropeSouth Africa Has Its First Case of Most Transmissible Covid VariantEurope’s Stoxx 600 Index climbed, with mining shares among those leading the advance. Wall Street equity futures pointed to more modest gains after the S&P 500 and Nasdaq 100 jumped in excess of 2% on Friday. The MSCI Emerging Markets Index is on track to enter a bull market after surging more than 20% from its October low.

The dollar extended Friday’s drop as traders bet that the Federal Reserve will slow rate hikes, with the Institute for Supply Management’s index of services in contraction territory and wage growth slowing. Yields on benchmark 10-year Treasuries climbed.The US December inflation report due Thursday will be front of mind for traders after last week’s jobs data failed to offer a clear picture, with unemployment at its lowest level in decades, while wage gains were weak. Kansas City Federal Reserve’s Esther George on Friday warned that officials will have a tough road ahead as they attempt to balance inflation and employment while others have previously emphasized rates will be higher, and held there for longer than earlier anticipated.“This week’s US inflation data will be key in either giving the bulls a further boost or bringing back the bears with revenge,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a note.Read More: Fed Officials Call for More Hikes Even as Price Pressures CoolSwaps contracts show investors expect the policy rate to peak at under 5% this cycle, down from 5.06% just before Friday’s jobs report. While traders remain divided about the size of February’s hike, with 32 basis points of tightening priced in, it appears that a quarter-point move is seen as more likely than a half-point increase.While pressure on the Fed to hike by 50 basis points on Feb. 1 has eased, “policy makers appear to be increasingly frustrated by market-pricing at odds with Fed signaling in terms of both the terminal funds rate and timing of initial rate cut,” BNP Paribas economists led by Carl Riccadonna wrote in a note to clients. “This could tilt their bias toward a more forceful response at the next meeting.”Gains in the emerging-markets equity benchmark have been driven by Chinese stocks after the nation pivoted on its Covid strategy and offered more policy support for the economy.Goldman Sachs Group Inc. predicts a further 15% upside for the MSCI China Index. 

The Hang Seng China Enterprises Index, which tracks Chinese companies, rose 2% on Monday. The offshore yuan strengthened past 6.8 per dollar for the first time since August.“Asian markets have been through a much more severe bear market than it typically tends to see and the China reopening will be more positive even for Asia-ex China markets,” Rupal Agarwal, a quantitative strategist at Sanford C Bernstein in Singapore, said on Bloomberg TV. The 2022 laggards will come back sharply this year, “so we are favoring more China, Korea and Taiwan,” she said.Elsewhere, oil rallied on optimism about a recovery in China’s demand. Gold extended gains after the latest US data added to signs the Fede will become less hawkish this year.Investors will also be keeping a close eye on Brazilian assets after thousands of supporters of former President Jair Bolsonaro stormed the country’s top government institutions in an insurrection that will test the leadership of President Luiz Inacio Lula da Silva just a week after he took office.

Source : [Stocks Extend Risk Rally on China; Dollar Weakens: Markets Wrap](finance.yahoo.com/news/asian-stocks-set-us-ism-215741308.html) by John Viljoen - January 09, 2023