Markets Today: Stocks Mixed as China Reopens Borders and Ends Travel Restrictions

Morning Markets

The S&P 500 ($SPX) is down -0.1% this morning, the Dow Jones Industrial Average ($DOWI) is up +0.3%, and the Nasdaq ($NASX) is down -0.7%.

Stock indexes this morning are trading mixed. There is hope that global economic growth will improve after China took steps to roll back its Covid restrictions.  China said today that it would reopen its borders from Covid curbs and eliminate quarantine restrictions for inbound travelers starting January 8.  China’s National Health Commission said late Monday that people arriving in China would only be required to obtain negative Covid test results within 48 hours of departure.  Also, current limits on the number of international flights between China and the rest of the world and passenger capacity will be removed.

Energy stocks and metals producers are also moving higher in pre-market trading, with WTI crude climbing to a 3-week high and COMEX copper up more than +2% on hopes that the reopening of China’s economy will boost energy and industrial metals demand.

Gains in Nasdaq futures were limited today, with Tesla down more than -4% in pre-market trading at a new 2-year low after Reuters reported it would slow vehicle production output at its Shanghai factory in the first half of January and stop production altogether at the plant the last week of January for the Chinese New Year holidays. 

On the bearish side for stocks, the 10-year T-note yield today rose to a 1-month high of 3.813% and the 10-year German bund yield rose to a 2-month high of 2.522%.

Overseas markets today are higher.  The Euro Stoxx 50 index today is up +0.80%.  The Shanghai Composite index closed up +0.98%, and Japan’s Nikkei Stock index closed up by +0.16%.

European stocks are climbing as market sentiment improved after China took steps to reopen its economy.  Travel stocks and consumer products companies moved higher after China said it would no longer subject inbound travelers to quarantine starting January 8.  However, higher government bond yields are negative for stocks, with the 10-year German bund yield climbing to a 2-month high of 2.522% on strength in stocks and hawkish ECB comments.

ECB Governing Council member Knot said he sees "quite a decent pace of tightening" with +50 bp rate hikes in the next several months before borrowing costs eventually peak by summer.

Chinese stocks rallied moderately today, led by gains in travel stocks after Chinese health authorities said inbound travelers would no longer have to quarantine as the country continues its shift away from strict Covid Zero policies.  Property and real estate stocks also moved higher today on signs of easing housing restrictions after the city of Dongguan, in the southern province of Guandong, suspended home purchase restrictions.

China Nov industrial profits fell -3.6% y/y, the biggest decline in 2-1/4 years, and the fifth consecutive month that profits have fallen.

Japanese stocks posted moderate gains today on the positive news out of China that the country was ending its Covid restrictions.  Also, Japanese department-store and tourism-related companies rose after Takashimaya beat quarterly profit estimates and lifted its full-year outlook.  Gains in stocks were limited after today’s economic news showed that Japan’s Nov retail sales unexpectedly declined by the most in 5 months.

Japan Nov retail sales unexpectedly fell -1.1% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 5 months.

Pre-Market U.S. Stock Movers

Energy stocks and energy service providers are climbing in pre-market trading, with WTI crude oil up +0.5% at a 3-week high after China took more steps to unwind its Covid Zero policy.  ConocoPhillips (COP), Devon Energy (DVN), Exxon Mobil (XOM), Haliburton (HAL), Marathon Petroleum (MPC), and Valero Energy (VLO) are up more than +1%. 

U.S.-listed Chinese stocks are climbing in pre-market trading after China took steps to reopen its economy and end Covid Zero policies. Alibaba Group Holding (BABA), Pinduoduo (PDD), JD.com (JD), Baidu (BIDU), and NetEase (NTES) are up more than +2%. 

Mining stocks and metals producers are moving higher in pre-market trading, with copper prices up more than +2% on optimism industrial metals demand will improve after China took steps to end pandemic restrictions and reopen its economy.  Freeport-McMoRan (FCX), Southern Copper (SCCO), Alcoa (AA), and Newmont (NEM) are up more than +2%.

Tesla (TSLA) dropped more than -4% in pre-opening trading after Reuters reported the company would run vehicle production at its Shanghai plant at a reduced rate from Jan 3-19 and stop output from Jan 20-31 for the Chinese New Year.

Southwest Airlines (LUV) tumbled more than -4% in pre-market trading after it said it expects more cancellations caused by the winter storm that battered the U.S. to continue for at least several more days.

Today’s U.S. Earnings Reports (12/27/2022)

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