Wall Street’s main indexes were set to open higher on Wednesday on optimism around the unwinding of pandemic restrictions by China, though a surge in COVID cases in the world’s second largest economy kept investors on edge.
Beijing began dismantling its strict COVID curbs this month in an abrupt policy U-turn and on Monday announced it would drop its quarantine rule for inbound travelers from next month.
Markets initially cheered the move on hopes it would spur a rebound in COVID-hammered Chinese economy, but a jump in infections has fanned fresh worries.
“What people are underestimating is the fact that the second largest economy in the world is now reopening and all that economic activity is going to benefit the U.S.,” said Thomas Hayes, chairman at Great Hill Capital LLC in New York.
“The speed at which they have reversed their stance has caught people off guard. People are skeptical because the last two years have been such a debacle in China.”
As markets enter the last leg of a grueling year for equities on fears of a recession from the fastest pace of rate hikes by the Federal Reserve since the early 1980s, focus has shifted to 2023 and the outlook for corporate earnings.
The benchmark S&P 500 (.SPX) is down nearly 20% year-to-date and set for its biggest annual loss since the financial crisis of 2008. The rout has been more severe for the tech-heavy Nasdaq Composite (.IXIC), down nearly 34% for the same period.
Both indexes ended lower on Tuesday at the beginning of a holiday-shortened week as growth stocks bore the brunt of investor angst over how long the Fed would continue to raise interest rates to tame high prices.
While recent data pointing to an easing of inflationary pressures has bolstered hopes of smaller rate hikes, a tight labor market and a resilient American economy have spurred worries that rates could stay higher for longer.
Markets are now pricing in 69% odds of a 25-basis point rate hike at the U.S. central bank’s February meeting and see rates peaking at 4.94% in the first half of next year. .
At 8:10 a.m. ET, Dow e-minis were up 96 points, or 0.29%, S&P 500 e-minis were up 10.5 points, or 0.27%, and Nasdaq 100 e-minis were up 19.5 points, or 0.18%.
Shares of Tesla (TSLA.O) rose 2.5% premarket. They hit their lowest level in more than two years in the previous session over demand worries in China.