Global Market Overview

Last updated: September 10, 2013 9:25 pm

Wall Street builds on China data rally

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Tuesday 17:15 BST. European stocks jumped to their highest since May, joining Asian equities and the Australian dollar as the major beneficiaries of a rally powered by Chinese industrial production and retail sales figures that beat expectations.

Broad-based risk appetite helped lift Wall Street stocks as the US government suggested that it might hold back on a military strike against Syria if its cedes its stock of chemical weapons.

The S&P 500 climbed 0.73 per cent as US investors also snapped up shares in Goldman Sachs, Nike and Visa as plans to add the trio to the Dow Jones Industrial Average were announced.

European markets that had missed out on Monday’s China data-fuelled gains this time joined the party, with the FTSE Eurofirst 300 up 1.4 per cent and the FTSE 100 rising 0.8 per cent in London.

Rising for a ninth consecutive day, the FTSE Asia Pacific index extended its longest run of gains for nine months to climb 1.2 per cent while the Australian dollar, a commodity currency heavily dependent on Chinese economic progress, rose 0.8 per cent to US$0.9299, hitting three-month highs.

“China’s August real activity data came in stronger than expected, which will help sustain the market rally due to improving market sentiment towards China’s economy,” said Li-Gang Liu of ANZ.

Analysts at Action Economics added: “China economic data surprised on the topside. August industrial production reached its highest levels since March 2012 at 10.4 per cent year-on-year from 9.7 per cent previously, while retail sales hit 13.4 per cent year-on-year from 13.2 per cent previously.

“The numbers reinforce expectations that China has overcome the slowdown in activity from earlier in the year and remains on course to meet its growth target of 7.5 per cent.”

Hong Kong’s Hang Seng rose 1 per cent with its Chinese enterprises sub-index climbing 1.6 per cent. In South Korea, the Kospi Composite gained 1 per cent and Australia’s S&P/ASX 200 was 0.4 per cent firmer. Markets on mainland China overcame early profit-taking with the Shanghai Composite climbing 1.2 per cent.

The standout performer was Mumbai, with Indian stocks surging to their highest gains in more than four years as investors continued to warm to new proposals from new Reserve Bank of India Governor Raghuram Rajan. The BSE Sensex climbed 3.8 per cent and the Indian rupee 2.2 per cent.

The recent rally, despite concerns over Syria, has left global stocks closing in rapidly on five-year highs – with the FTSE All World index up 0.9 per cent on Tuesday.

“Whatever happens, it remains our view that this [Syrian] issue will be concluded in a way that’s relatively benign for the financial markets,” said Steven Barrow of Standard Bank. “It is also our view that any Fed tapering next week will not bring the market upset that many traders and investors seem to fear.”

“Put these things together and we continue to have a reasonably constructive view of riskier assets right now,” he added. “In the G10 space some riskier assets – like the Australian dollar – have already made a big comeback but we don’t think this is over just yet. The yen, Swiss franc and the dollar may have the most to lose in this scenario.”

In the currency markets, the yen depreciated back through the Y100 per dollar level, slipping 0.7 per cent to Y100.26.

“The yen is continuing to trade on a weaker footing as global investor risk sentiment improves and yield spreads between Japan and overseas widen,” said Lee Hardman of Bank of Tokyo-Mitsubishi UFJ. “Japanese government bond yields have trended lower recently in contrast to rising yields globally.”

The US currency made gains, however, for the first time in three sessions, the dollar index climbing 0.1 per cent while the euro traded flat against its transatlantic rival.

In the government bond markets, Italy’s benchmark yields rose above those of Spain for the first time in 18 months.

Although Italian debt has been under pressure from attempts to expel former premier Silvio Berlusconi from parliament, which could unravel Rome’s governing coalition, the moves were driven more by Spanish outperformance as its 10-year yields fell 3 basis points to 4.51 per cent. Equivalent Italian yields rose 1bp to 4.53 per cent.

The damping of haven demand saw German Bunds sold off for a second day, its yields climbing 7bp to 2.03 per cent, while 10-year US Treasury yields also rose by 5bp to 2.96 per cent.

The easing of geopolitical concerns over Syria contributed to notable softness for gold prices, which fell 1.7 per cent to $1,364 an ounce. US oil futures fell for a second day, with WTI tumbling 2 per cent to $107.28 per barrel.

Additional reporting by Sarah Mishkin in Hong Kong and Arash Massoudi in New York

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