Stocks, oil prices rally on China hopes

NEW YORK — Stock markets and oil prices rallied on Friday on hopes China would roll back some of its economically-painful policies surrounding COVID.

Equities also got a boost from the latest US jobs data, which showed that hiring remained resilient and wages continued to rise, though at a slower pace, raising hopes of a soft landing of the economy despite rising interest rates aimed at quelling inflation.

"Asia markets bounced back strongly today on more unsubstantiated reports that the Chinese government is looking at a reopening strategy as it looks to navigate a path out of the straitjacket of its current zero-COVID policy," said CMC Market Analyst Michael Hewson. 

"These reports, which still haven't been confirmed in any official capacity, have prompted a huge relief rally in equity markets, despite concerns that any reopening is unlikely to happen in the immediate future, and the very real risk that it is merely a sucker's rally," he added.

The rally continued into Europe, where London, Paris and Frankfurt all rose at least 2 per cent.

Wall Street stocks climbed as well, with major indices all finishing more than 1 per cent higher after a volatile day of trading.

The optimism lifted oil prices, with Brent crude jumping 4.1 per cent and West Texas Intermediate bouncing 5 per cent as traders eyed rising demand for crude on the news out of China.

The pound also won back some ground against the dollar, rising nearly 2 per cent after tumbling after the Bank of England (BoE) said the UK economy could face a two-year-long recession that it believes has already begun.

The BoE raised its main interest rate by 0.75 percentage point on Thursday, the most in 33 years in efforts to contain runaway inflation.

This came after the US Federal Reserve (Fed) hiked its key rate by the same amount — the sixth increase this year — as central banks try to cool decades-high inflation.

The Fed has pointed to a still-strong labor market as a key reason for not easing up on its aggressive tightening.

The addition of 261,000 US jobs last month — far more than economists had forecast — likely will reinforce the determination of policymakers to continue the hawkish stance, even if they slow the pace of increases.

That would normally see equities tumble as higher interest rates are bad for most businesses.

But the figures are "consistent with achieving a soft landing for the economy", said Market Analyst Patrick O'Hare at Briefing.com, who also cited a "buy-the-dip" dynamic after US stocks fell four straight sessions earlier in the week.

While Fed Chair Jerome Powell said it is premature to think about pausing rate hikes, Boston Fed President Susan Collins added on Friday she sees a chance to achieve the goal of reining in price increases without putting the brakes on growth entirely.

But Chris Beauchamp, chief market analyst at online trading platform IG, pointed to one indicator in the report that suggests a drop of 300,000 jobs was the reason why the unemployment rate inched higher.

"This might be a case of cherry-picking par excellence, but markets have taken it as the first sign that the hitherto-unstoppable US market is weakening, thus perhaps bringing forward the chances of that fabled Fed pivot we keep hearing so much about," said Beauchamp.

Markets have been looking for any data that would help the Fed "pivot" away from its aggressive rate hikes.