October 18, 2012 / 2:53 AM / 5 years ago

Chinese data supports shares but gains capped by Europe

Traders work at their desks at Frankfurt's stock exchange August 8, 2011. REUTERS/Pawel Kopczynski

LONDON (Reuters) - European shares hovered near a one-month high and Asian stocks jumped on Thursday, as a slew of Chinese data brightened the outlook for the world economy.

The more stable growth figures for China, coupled with recent good news from the United States on jobs and housing activity, have convinced many investors that a slowdown in world economic activity has at least bottomed out.

“There’s definitely been a shift in investor sentiment towards the positive,” said Richard Hunter, head of UK equities at Hargreaves Lansdown.

But the better mood is being held in check by worries about progress in Europe on measures to tackle the region’s three-year-old debt crisis, as leaders from the 27-nation European Union gathered in Brussels for a two-day summit.

The FTSE Eurofirst 300 .FTEU3 index of top European shares was barely changed at around 1,117 points at the midsession but remained close to its best levels for nearly a month.

The same was true of London’s FTSE 100 .FTSE, the French CAC-40 .FCHI and Frankfurt’s DAX .GDAXI, which were oscillating between slight gains and losses.

U.S. stock index futures pointed to a similarly mixed outlook for Wall Street, where the better economic outlook is being offset by weaker corporate earnings resulting from the flagging growth seen in the last quarter. .N

Asia-Pacific shares outside Japan .MIAPJ0000PUS finished the day with gains of 0.5 percent, however, their third consecutive daily rise, to stand at a seven-month high.

SUMMIT SILENCE

European leaders will try to bridge deep differences over plans for a banking union at their summit on Thursday, but no substantial decisions are expected. Moves to help Spain, Greece and Cyprus may come only at a finance ministers’ meeting next month, officials have told Reuters.

Spain remains the most immediate focus of attention, with the market expecting it to ask formally for international assistance very shortly, clearing the way for the European Central Bank to begin buying its bonds.

The euro has risen nearly five percent since the ECB promised in early September to buy unlimited amounts of Spanish debt if the help were requested, and was holding onto these gains on Thursday to be just under $1.31.

“We are expecting some more upside in the euro as investors seem to get comfortable with the timeline about when Spain will seek a bailout and the ECB’s bond-buying will be triggered,” said Beat Siegenthaler, currency strategist at UBS.

The view that aid was on its way, which saw ratings agency Moody’s affirm Spain’s investment grade credit status earlier this week, allowed Madrid to sell 4.6 billion euros ($6 billion)of new debt on Thursday at yields sharply below those at a previous sale in September.

“Today’s auction was well received because the markets believe the key domestic and external pieces for a bond-buying programme for Spain are falling into place,” said Nicholas Spiro of consultancy Spiro Sovereign Strategy.

Ten-year Spanish bonds yields, which exceeded 7.6 percent in late July before the ECB promised to act, eased 8.5 basis points on the day, to 5.42 percent after the auction.

CHINA RELIEF

Commodities and other assets sensitive to demand from China saw gains on the rising prospects of a recovery in demand during the fourth quarter, when Beijing will also see its first big leadership change in a decade.

The data showed China’s third-quarter gross domestic product grew 7.4 percent from a year earlier, which was below target but in line with expectations. However, September data for key areas like retail sales and industrial output did much better than forecast, pointing towards a recovery.

“The data for September suggests China’s economy likely bottomed in July-August and is set to recover, and this will help ease fears about further downside risks to the Chinese economy,” said Hirokazu Yuihama, a senior strategist at Daiwa Securities.

The Australian dollar, which is highly correlated to China’s economic performance, touched a two-week high of $1.0397 after the data, and last traded at $1.0380.

The U.S. dollar also rose, touching a one-month high of 79.22 yen, as the improvement in U.S. housing and jobs markets left the Japanese currency to take the brunt of investor selling.

The dollar’s appeal has been supported by the rise in 10-year U.S. Treasury yields to highs of 1.81 percent.

Among commodities, Brent crude oil, which is up about five percent this year as friction in the Middle East supports prices, gained 10 cents a barrel to be around $113.32.

But a rise in American crude oil stocks reported on Wednesday saw U.S. oil for November slip 15 cents to $91.97.

Three-month copper on the London Metal Exchange hit a one-week high of $8,260 on the Chinese data before settling to be 0.2 percent up at $8,237.25 a tonne.

Gold was trading nearly flat at $1,750 an ounce as investors preferred to wait for the outcome of the EU summit. ($1 = 0.7621 euros)

Additional reporting by Anirban Nag; Editing by Will Waterman and Alastair Macdonald

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