Global Market Overview

Last updated: January 18, 2013 9:44 pm

Chinese growth figures support shares

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Friday 21:15 GMT. Global stocks wrapped up the last trading session of the week near their best levels in more than four years as optimism about the world’s two biggest economies supported demand for selected growth-sensitive assets.

Investors have struck a mostly bullish pose since the start of the year, with their confidence lifted not just by the better macroeconomic news from China and the US, but also continuing central bank largesse, easing eurozone debt tensions and relief that a budget deal in Washington avoided a hard landing off the fiscal cliff.

Investors also focused on the fourth-quarter corporate earnings season with results that were mixed – among many headline names, at least.

However, messages from the microeconomic front were much less effusive as the fourth-quarter corporate earnings season afforded so far a decidedly mixed reception, among many headline names at least.

In the latest batch from the US, General Electric’s results on Friday proved a pleasant surprise to The Street. The largest US industrial group by market capitalisation said that demand from China and resource-rich countries was growing. The company reported an 11 per cent rise in earnings from continuing operations for the fourth quarter of last year, beating analyst expectations.

But investors were less enamoured of chipmaker Intel, which, after Thursday’s closing bell, forecast current quarter revenue that was slightly below expectations, weighing on the performance of tech shares.

It was this caution about earnings – and news of a trend-challenging dip in US consumer confidence during January – that ensuring early gains in Asia on Friday were not replicated in Europe and the US with the same vigour.

Analysts at Capital Economics said in a note to clients that the drop in consumer confidence suggested that the actual onset of lower after-tax incomes in the new year further damped sentiment.

“As it stands now, confidence is at a level consistent with a near stagnation in first-quarter consumption growth,” they said.

The FTSE All-World equity index rose 0.3 per cent to 231.94 after the Asia-Pacific region rose 1.2 per cent, the FTSE Eurofirst 300 dipped 0.1 per cent. On Wall Street, the S&P 500 bounced back from minor losses to trade 0.3 per cent higher at a new fresh five-year high at 1,485.

But the early softness on equities was meagre in the context of the recent risk asset rally; indeed just another 3 point advance for the All-World and it will be trading at levels not seen since the summer of 2008.

Furthermore, it was clear investors remained relaxed. The CBOE Vix index, a volatility measure known as Wall Street’s fear gauge, traded below 13 for the first time since June 2007, according to Reuters data.

Across other asset classes the message was also muddled. Commodities were mixed, with copper up 0.3 per cent at $3.66 a pound on global demand hopes, but Brent crude reversed earlier losses to advance 0.7 per cent to $111.90 a barrel.

The dollar index, which tends to sport a negative correlation to equities, made a significant headway, up 0.5 per cent as the euro slipped 0.4 per cent to $1.3315.

Gold retreated $3 to $1,684 a troy ounce and Treasuries shrugged off early pressure to again attract buyers, causing the US 10-year yield to fall 5 basis points to 1.84 per cent.

Earlier, Asian bourses were in fine fettle, providing a bullish underpinning for the last global session of the week.

Shares in the region rose across the board after China’s economy recorded a better than expected fourth quarter and as investors welcomed further evidence that the US economy is gaining traction.

Data released on Friday showed that Chinese GDP expanded 7.9 per cent year on year in the final three months of 2012, slightly higher than expectations of a 7.8 per cent increase and ending a streak of seven straight weaker quarters. Full-year growth came in at 7.8 per cent, the lowest annual reading in more than a decade.

Nomura’s Zhang Zhilei said in a note to clients that the data set “reinforces our view that the growth recovery is on track” and that growth should accelerate in the first quarter of 2013 to 8.2 per cent.

The Hang Seng index in Hong Kong gained 1.1 per cent while the Shanghai Composite endured a bumpy morning of trading, at one point falling 1 per cent before rallying to a gain of 1.4 per cent.

But the region’s biggest mover was Japan’s Nikkei 225, which surged 2.9 per cent on continued yen weakness. The dollar/yen rate moved above 90 for the first time in more than two years, after Japanese economy minister Akira Amari rowed back from comments he made earlier in the week in which he warned of potential damage from a weakening currency.

Additional reporting by Jamie Chisholm in London

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