World stocks and oil prices battled to pull out of a four-day slide on Thursday as deeply distorted bond curves and choppy currencies underscored the simmering concerns among investors about economic stagnation next year.
The sight of China relaxing more of its Covid curbs had sent Hong Kong's Hang Seng .HSI up more than 3% overnight and kept the yuan near a 3-month high CNY=, but it was all much more subdued in Europe.
A groggy STOXX 600 - which has recovered more than 15% since October - barely budged all day, with only oil and gas stocks .SXEP able to make any real headway as an icy snap of weather and sabre-rattling by Russia sent natural gas prices TRNLTTFMc1 up more than 5%.
Wall Street futures were up 0.5% .N. Benchmark government bond yields also ticked higher after hitting their lowest levels in months, in the run-up to a raft of data and major central bank meetings next week, including the US Federal Reserve, the European Central Bank and the Bank of England.
"Everyone is just waiting to see what comes out in terms of the economic numbers and the central bank meetings next week," said Close Brothers Asset Management's Chief Investment Officer Robert Alster.
"There is also China," he added, referring to the country's efforts to relax coronavirus curbs. "It is really happening quite quickly now... So it could be pretty beneficial for 2023 as long as it doesn't stoke any more inflation."
Global bond yields, which move inversely to prices, have tumbled in recent weeks on signs that the prospect of recessions will slow the rise in interest rates.
Comments from ECB officials this week saying euro zone inflation is probably near its peak has bolstered hopes that it will slow its hikes to 50 bps from 75 bps previously at its Dec. 15 meeting. Both the Fed and BoE are expected to do the same at their respective meetings.
Yet many analysts think the sharp drop in euro zone yields has perhaps gone too far, given that inflation is still in double digits and the ECB is set to raise rates to at least 2% next week.
Germany's 10-year bond yield DE10YT=RR, seen as the benchmark borrowing cost for the bloc, circled around 1.795% for most of the morning having hit a two-month low of 1.788% on Wednesday.
That though is still roughly 200 bps higher for the year and reflects the surge in price rises the region and the wider economy has witnessed this year.
"We are still at a very high level of inflation in the euro zone," said Camille de Courcel, head of European rates strategy at BNP Paribas Markets.
De Courcel expects a 50-bps rate hike from the ECB next week, but there "is still a risk that they deliver a 75".
The yield on 10-year Treasury notes US10YT=RR was up fractionally at 3.453%, while yield on the 30-year Treasury bond US30YT=RR inched up to 3.445%.
In a indicator of recession concerns, yhe heavy inversion of the yield curve remained stark. The two-year US2YT=RR US Treasury yield, which typically moves in step with interest rate expectations, was up at 4.27%.
BULLS IN THE CHINA SHOP
In the currency market, the US dollar chopped around as traders weighed which way to go from here. It had briefly pegged the euro EUR=EBS back to $1.0495 and sterling GBP=D3 to $1.2170, but then scurried back to $1.0510 on the euro and $1.2211 per pound.
US monthly consumer inflation is also due next week, a day before the Fed's policy meeting on 14 December, and could be pivotal in setting longer-term expectations for monetary policy.
"US CPI is the one data release that seems to really matter for broader dollar direction at the moment and, until we got those central bank meetings and one key monthly US data release, not a great deal is happening," RBC currency strategist Adam Cole said.
Asia's actions had been far more thrusting after Chinese and Hong Kong media reported that further relaxations of Covid rules are being considered.
Macau's casino operators hit the jackpot .CSICESG10 surging 9% and taking their gain this quarter to more than 40%.
Hong Kong's Hang Seng Index climbed more than 3% while China's tech giants Alibaba 9988.HK and Meituan 3690.HK jumped 6% each.
"While it could be a bumpy journey over next few weeks, China is ready to move on from Covid in one to two quarters," said Wenli Zheng, portfolio manager of the China Evolution Equity Strategy at T. Rowe Price, adding that Chinese stocks could be the bright spot in 2023.
Among the main commodities, oil found its footing after a four-day drop that had taken it into the red for the year.
Brent crude rose $1.92 cents, or 2.5%, to $79.14 a barrel as US trading began, while US West Texas Intermediate (WTI) crude CLc1 jumped over $3, or 4.5%, to $75.36.
Back in early March, shortly after Russia's invasion of Ukraine, Brent had been at almost $140 a barrel, which was up nearly 80% for the year at the time.
Traders put Thursday's modest lift down to China's Covid steps and the fact that at least 20 oil tankers now face delays in crossing to the Mediterranean from Russia's Black Sea ports following new European sanctions.