Equities and US index futures increased on Monday after China loosened its COVID-19 restrictions, as well as Wall Street's best weekly performance since November 2020.

Nasdaq 100 futures rose by more than 1%. S&P 500 futures recovered its May losses and halted its 7-week losing streak as institutional investors rebalanced their portfolios at the end of the month.

European equities jumped to their highest level in 3 weeks, trimming their monthly drop. However, inflation in Spain has unexpectedly accelerated, denting hopes that the eurozone's record inflation is peaking and putting pressure on the ECB.

The Nikkei 225 and the Hang Seng Index increased after the Chinese authorities announced COVID-19 cases were on the decline in Beijing and Shanghai. The Chinese government loosened some restrictions to boost sagging economic growth.

As investors are buying the dip after one of the worst starts to the year for equities, traders are wondering whether the bottom of a recent selloff is near. However, concerns remain about tighter monetary policies from central banks, escalating food inflation from the war in Ukraine, and China's COVID-19 measures.

"We are in the middle of a bear market rally," Citigroup Australia's head of investment specialists Mahjabeen Zaman told Bloomberg.

"I think the market is going to be trading range bound trying to figure out how soon is that recession coming or how quickly is inflation going down," with Treasury yields set to peak in 2022, she added.

Later this week, traders will focus on average hourly earnings data to estimate the Fed's tightening course, as the regulator strives to quell inflation. The Federal Reserve will begin reducing its $8.9 trillion balance sheet on Wednesday.

This week's key economic events:

Monday: US markets are closed for Memorial DayMonday: EU leaders will start a two-day special meeting in Brussels later in the day to discuss the war in Ukraine, defense, inflation, energy, and food security. Tuesday: China PMI dataTuesday: Eurozone CPI dataWednesday: Fed Beige Book releaseWednesday: The Fed will begin to reduce its $8.9 trillion balance sheet Wednesday: Statements by New York Fed President John Williams and St. Louis Fed President James BullardWednesday: Virtual meeting of OPEC+Thursday: Cleveland Fed President Loretta Mester discusses the economic outlookFriday: US May employment reportFriday: United Nations Food and Agriculture Organization releases its monthly food price index