European stocks started the week with small gains as markets speculated China would ease its strict zero-Covid stance, even as Beijing insisted its hardline measures would remain in place.
The regional Stoxx Europe 600 was up 0.3 per cent in early Monday trading having finished last week 1.3 per cent higher, as investors bet a change in policy would be a boost for mining stocks. The FTSE 100 was flat.
Investors welcomed better than expected German economic data. Industrial production rose 0.6 per cent month on month in September, better than the 0.8 per cent decline expected by economists polled by Reuters. Even so, Franziska Palmas, an economist at Capital Economics, maintained that Europe’s largest economy would plunge into a “deep recession” in the new year.
China equities rose sharply, before trimming their gains, as the Chinese government said there would be no change to its stringent Covid-19 prevention measures. The daily number of Covid infections in China hit a six-month high of 4,420 on Saturday, official data showed.
The optimism comes days after German chancellor Olaf Scholz said China had agreed to allow foreign residents access to BioNTech’s Covid vaccine.
Chinese exports also contracted only 0.3 per cent in October compared with the same period a year before, well below economists’ forecasts of a 4.5 per cent expansion
Hong Kong’s Hang Seng index added 2.5 per cent, while China’s CSI 300 rose 0.2 per cent. Elsewhere in Asia, Japan’s Topix rose 1 per cent and South Korea’s Kospi gained 0.9 per cent.
Emmanuel Cau, European equity strategist at Barclays, said a “quick and broad reopening [in China] seems highly unlikely”, but that “there may be a case for authorities to turn more supportive of growth into 2023, which could be a game changer for markets”.
Futures contracts tracking Wall Street’s benchmark S&P 500 meanwhile fell 0.4 per cent and those tracking the tech-heavy Nasdaq 100 lost 0.5 per cent. The Nasdaq last week fell 5.6 per cent in its biggest decline since late January, while the S&P registered its biggest weekly decline since late September, falling 3.4 per cent.
Analysts at Goldman Sachs on Friday cut their S&P 500 earnings per share growth forecast for 2023 to 0 per cent from 3 per cent on the back of a “disappointing” third-quarter reporting season for the biggest companies in the US.
The bank’s economists expect real US gross domestic product growth to slow from 1.9 per cent in 2022 to 1 per cent in 2023, assigning a 35 per cent probability of recession in the next 12 months. In such a scenario, S&P 500 earnings per share could fall by as much as 11 per cent, Goldman Sachs said.
In government bond markets, the yield on the two-year Treasury added 0.04 percentage points to 4.69 per cent, while the yield on the 10-year rose 0.05 percentage points to 4.16 per cent.