Stock markets extend gains on Fed hopes, China

LONDON — Major stock markets mostly climbed Monday and oil prices rallied, building on optimism generated by China's COVID reopening and hopes the Federal Reserve (Fed) will slow its pace of interest rate hikes.

A closely watched report on Friday showed a forecast-busting rise in new US jobs, along with a slowdown in wage growth.

That came as separate figures showed a shock contraction in the US services sector — the first since spring 2020, at the height of the COVID pandemic.

The readings, while suggesting the world's largest economy was showing signs of weakness, were seized on by traders hopeful that the Fed would begin to temper the pace of US interest rate increases.

"Expectations have risen that aggressive moves by the Federal Reserve are finally bruising the resilient labour market and wounding a wage spiral," said Susannah Streeter, senior investment and markets analyst at the brokerage firm Hargreaves Lansdown.

"However, policymakers are still likely to stay cautious, fearful that if they drop their guard, inflation may still come back to bite," she said.

Investors are betting on the US central bank to lift borrowing costs about 25 basis points at its next meeting at the end of the month.

Policymakers have warned that rates will continue to go up as they aim to bring decades-high inflation under control, with some saying they will not likely be cut until 2024.

The eurozone will meanwhile experience "very strong" growth in wages in the coming months as salaries catch up with galloping inflation, the European Central Bank predicted Monday.

As the new trading week kicked off, the biggest stock market gains came in Asia amid China's emergence from its strict zero-COVID polices of lockdowns and other restrictions, and the country's pledges to help its struggling economy, particularly the property sector.

The borders between Hong Kong, Macau and China were partially opened Sunday, providing a much-needed boost to Hong Kong. Stocks in Macau-based casinos surged on the move.

"The U-turn in China's COVID policy is consequential to growth and equity returns," said Stephen Innes, managing partner at SPI Asset Management.

"So with the lifting of border restrictions between China/Hong Kong/Macau and international travel reopening, local travellers are not only in a celebratory mood but also investors."

Oil prices jumped more than 3 per cent on Monday, having plunged around eight per cent last week on weaker demand concerns caused by the spike in COVID infections in China as containment measures are lifted.