NEW YORK—Stock markets and oil prices went up on Friday because people thought China would change some of its COVID policies that hurt the economy.
Equities also got a boost from the latest US jobs data, which showed that hiring was still strong and wages were still going up but at a slower rate. This gave people hope that the economy would have a soft landing even though interest rates were going up to stop inflation.
CMC Market Analyst Michael Hewson said, “Asia markets bounced back strongly today on more unconfirmed reports that the Chinese government is looking at a reopening strategy as a way to get out of the straitjacket of its current zero-COVID policy.”
“These reports, which haven’t been confirmed in any official way yet, have caused a huge relief rally in equity markets,” he said. “This is despite the fact that reopening isn’t likely to happen soon, and there’s a very real chance that it’s just a sucker’s rally.”
Europe kept going up, too. London, Paris, and Frankfurt all went up by at least 2%.
Stocks on Wall Street also went up. After a day of trading that was full of ups and downs, the major indices all ended the day more than 1% higher.
Oil prices went up because of this optimism. Brent crude went up 4.1% and West Texas Intermediate went up 5% as traders expected more people to buy crude because of news from China.
The pound also gained some ground against the dollar, rising nearly 2% after falling after the Bank of England (BoE) said the UK economy could face a two-year recession that it thinks has already started.
In an effort to stop inflation from getting out of control, the BoE raised its main interest rate by 0.75 percentage points on Thursday. This was the most it has gone up in 33 years.
This happened after the US Federal Reserve (Fed) raised its key rate by the same amount. This was the Fed’s sixth increase this year, and it was done to try to slow down inflation that has been high for decades.
The Fed has said that one of the main reasons it hasn’t slowed down on its tightening is that the job market is still strong.
The US added 261,000 jobs last month, which was much more than what economists had predicted. This is likely to make policymakers even more determined to keep their “hawkish” stance, even if they slow the rate of increases.
Usually, that would cause stocks to fall, since most businesses lose money when interest rates go up.
But the numbers are “consistent with a soft landing for the economy,” said Market Analyst Patrick O’Hare at Briefing.com. He also mentioned a “buy-the-dip” trend after US stocks fell for four straight days earlier in the week.
Fed Chair Jerome Powell said that it is too early to think about stopping rate hikes, but Boston Fed President Susan Collins said on Friday that she thinks there is a chance to reach the goal of slowing price growth without stopping growth completely.
But Chris Beauchamp, chief market analyst at online trading platform IG, pointed to an indicator in the report that suggests a drop of 300,000 jobs was the reason why the unemployment rate inched up.
“This may be the best example of cherry-picking,” said Beauchamp, “but the markets have taken it as the first sign that the US market, which had been unstoppable until now, is weakening.” This could increase the chances of that “fabled Fed pivot” that everyone keeps talking about.
The markets have been looking for any information that could help the Fed stop raising rates so quickly.
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