When China relaxed some COVID restrictions, commodities surged, giving investors a glimmer of hope for a worldwide demand rebound. News of China boosted commodity-linked stocks as well as luxury goods retailers. European shares opened higher on Friday. Richemont’s better-than-expected sales and margins also look promising.
Despite the process being slow, the signs of opening up are evident. The China 50 is up 11% from the lows, and the Chinese Yuan is up 4.3%, illustrating spectacular progress. The news has caused commodity (oil, copper, etc.) prices to rise. China’s story has implications for the forex market too, especially the commodity-based currencies.
On the London Metal Exchange, zinc rose by more than 5%, while aluminum gained 3.8%. There was a month-long intraday surge in Chicago soybean futures in the United States. Iron ore prices rose as much as 8.2% in Singapore, while oil prices in New York and London increased by more than 2%. Copper, fine metals, and agricultural goods all increased as well. Almost all increases were prompted by the news of China reducing the length of time travelers and close contacts must spend in quarantine.
The present/future market sentiment
Investors’ sentiment remained largely positive since the CPI data released in October showed signs of easing inflation and thus, gave hopes of smaller Fed rate hikes going forward. Investors also closely observed China’s loosening of the Zero COVID policies that gave a further boost to inflation earlier. The commodities were hit the hardest because of China’s restrictive production and burden on labor.
Regardless, there was also pessimism present in the market. Although China’s policy developments are expected to reflect positively on the global macro economy, the jump in oil prices is most likely an overreaction.