Daily Market Comment – Stocks turn more cheery, dollar looks to Powell, US data for direction

  • Hong Kong shares rally, lift Asia and Europe, as China gloom fades
  • But Wall Street and dollar set sights on US retail sales and Powell’s inflation speech
  • Pound gets surprise jobs boost, shrugs off Bailey’s apocalyptic warnings

Easing crackdown worries lift China tech shares

Stocks in Asia were bolstered on Tuesday on signs that Chinese policymakers are having a rethink about how they regulate the digital economy as a government advisory body held consultations with local tech executives. Chinese tech shares have been pummelled over the past year as authorities clamped down on anti-competitive practices and data privacy concerns.

But as the economy struggles in a more challenging environment amid tightening financial conditions abroad and extended lockdowns in China’s major cities, policymakers may now be turning their attention to more supportive measures for the tech industry.

Hopes that today’s meeting will yield positive results for China’s tech giants and signal an easing in the year-long crackdowns buoyed Hong Kong’s Hang Seng index where the majority of Chinese tech stocks are listed. The index is up about 3% today, while a broader gauge of Asia-Pacific shares is set for its third straight day of gains.

In a further boost for the sector, analysts from JPMorgan Chase upgraded their outlook for several Chinese internet stocks.

Stocks perk up as mood brightens

The upbeat tone comes just a day after equity markets came under pressure from dreadful data out of China on Monday as the lockdowns severely curtailed economic activity in April. But the selloff was limited as authorities in Shanghai announced they plan to begin relaxing the restrictions on June 1 following a drop in infections.

Europe also had a mixed start to the week but the rebound is gathering steam on Tuesday, with Wall Street likely to join in this time.

The S&P 500 and Nasdaq Composite slid yesterday, paring some of Friday’s massive gains. But e-mini futures are sharply up today amid the broad risk-on sentiment. Still, Wall Street’s bounce back from last week’s more than one-year lows is not looking too convincing just yet.

Although Treasury yields have pulled back slightly in recent days and Fed rate hike bets are calming down, offering some support to US equities, investors are getting more nervous about the risks of a slowdown.

Today’s retail sales numbers due later at 12:30 GMT are being eyed for clarity on the strength of US consumer spending as the recent surveys haven’t been as positive as the hard data. Furthermore, Walmart will announce its quarterly earnings before the market open, so the two reports could make or break the latest rebound, which is struggling to take off.

Pound soars on robust jobs data as dollar retreats

The improved mood weighed on the US dollar, as its index against a basket of currencies slipped to a near one-week low. The safe-haven yen is also weaker across the board. Investors will be tuning in to Fed Chair Powell later on at 18:00 GMT when he will be speaking about inflation at a Wall Street Journal event in New York. Powell is unlikely to diverge from recent language but any emphasis on the upside risks to inflation could spark some fresh volatility in bond markets and the dollar.

Elsewhere, the pound led the gains, with the aussie and kiwi not too far behind. Sterling jumped towards the $1.25 level, having started the week nearer $1.22, after UK employment rose by more than expected in the three months to March. The jobless rate fell to a 48-year low of 3.7% and total average earnings rose by 7% year-on-year, all pointing to a very tight labour market.

Whilst the positive picture may not last very long given that the cost of living crisis is only just starting, the strong data does suggest that the Bank of England has a lot more room than previously thought on how far it can tighten policy.

Governor Andrew Bailey has taken markets by surprise with his dire warnings about a recession and the impact of higher consumer prices, yesterday describing the food price hikes as “apocalyptic” in a parliamentary hearing. But given how far sterling had slumped in recent weeks, today’s bounce back could be as much a correction as it is about a shift in expectations.

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