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FTSE 100 hits three-month high amid hopes China will curb COVID policies

People in Beijing gather for a vigil and hold white sheets of paper in protest over coronavirus disease. The FTSE was higher on Tuesday
The FTSE rose after Beijing held a news conference about it's COVID policies. Photo: Thomas Peter/Reuters

European stock markets were mostly in positive territory on Tuesday as traders were hopeful that China is set to finally ease its strict COVID policies.

In London, the FTSE 100 (^FTSE) rose 0.6% by the end of the session, hitting a three-month high, with energy and mining stocks leading the rally. The CAC (^FCHI) gained 0.1% in Paris, and the Frankfurt DAX (^GDAXI) was 0.2% lower.

Last night Beijing held a news conference on COVID prevention and control measures, which also pushed oil prices.

Brent crude (BZ=F) gained more than 2.7% to $85.48 per barrel at the time of writing, also lifted by talks that the OPEC+ cartel might cut production again. Oil hit its lowest level in almost a year yesterday.

“The same oil and mining stocks which had driven the index lower yesterday recovered on hopes for an easing of China’s strict zero-COVID policy,” AJ Bell investment director Russ Mould said.

“The widespread protests across China against COVID restrictions seem to have drawn a carrot and stick response from the government. Police have been out in force to prevent further civil disobedience while news the country plans to ramp up booster shots for the elderly hint at a more pragmatic response to the pandemic."

He added: “However, China has largely been reliant on less effective domestic vaccines and rates of vaccination are still a long way behind those in the West, while more successful containment of the virus means there is less natural immunity than in other parts of the world.

“As the shutdown at several car manufacturing sites across China shows, all the disruption is only likely to add to global supply chain woes."

Meanwhile, European Central Bank (ECB) president Christine Lagarde said that a more hawkish line on rising inflation was needed, suggesting that we can expect to see more than one or two more rate hikes in the coming months.

Traders will be looking towards the Bank of England’s money and credit data which is expected to show mortgage approval numbers falling to 60,000, their lowest levels since June 2020.

Net consumer credit has also slowed sharply, slipping to £700m in September from £1.2bn in August. This is expected to see a modest uptick to £900m.

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Across the pond, the S&P 500 (^GSPC) fell 0.6% and the tech-heavy Nasdaq (^IXIC) lost 0.8% by the time of the European close. The Dow Jones (^DJI) was 0.5% lower.

Michael Hewson of CMC Markets said: “The US dollar underwent a choppy session yesterday, initially slipping back before closing sharply higher on a combination of haven demand as stocks sold off, as well as hawkish comments from the likes of St. Louis Fed President James Bullard once again making the case for at least a 5% terminal rate before a pause by the end of Q1.

“New York Fed President John Williams also said that more work needed to be done on inflation, however with at least another 50bps rate hike coming in December, that’s not a particularly controversial position to take.”

Investors will be shifting their attention to a speech by US Federal Reserve chair Jerome Powell this week, Mizuho Securities said in a note, as well as a flood of data coming from the US this week, including PMI, core inflation and jobs data.

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Stocks in Asia managed to reverse Monday's steep falls in their largest one-day rally in a month. Chinese property companies rose after the country's securities regulator lifted a ban on equity refinancing for listed property firms.

The Hang Seng (^HSI) surged 5.2% in Hong Kong and the Shanghai Composite (000001.SS) jumped 2.3% on the day. In Tokyo, the Nikkei (^N225) lagged behind its peers, falling 0.5%.

It comes amid China's hardline COVID restrictions which sparked a weekend of protests nationwide. Security forces filled the streets of major cities such as Beijing and Shanghai.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “’Police in China have quashed mass COVID demonstrations for now, helping stocks regain their footing on indices across Asia, setting the tone for a positive open in Europe.

“But with the strict COVID policy continuing there is every chance protests will bubble up again, adding another laying of complication for an economic recovery.”

Watch: China's boiling point? Protests spread over zero-COVID policy