Monday 21:05 GMT. Global equities touched their best levels for six years and Wall Street set fresh record highs as investor risk appetite was bolstered by China’s plans for ambitious economic and social reforms over the coming decade.
However, signs of nervousness began to emerge in New York and the S&P 500 equityindex finished 0.4 per cent weaker at 1,791, having earlier peaked at 1,802. The Dow Jones Industrial Average made its first-ever foray above 16,000, but it too pared its initial advance. The FTSE All World index was up 0.2 per cent after reaching levels not seen since late 2007.
In Europe, the FTSE Eurofirst 300 rose 0.5 per cent to its highest close for five years, as the Xetra Dax in Frankfurt touched a record peak.
But the session’s star performers were Chinese stocks, as investors welcomed Beijing’s pledge to introduce wide-ranging reforms, including loosening the country’s one-child policy and phasing out state-controlled prices in a number of industries.
Chinese stocks listed in Hong Kong – so called H shares – jumped 5.7 per cent, their best one-day performance in two years, while the Shanghai Composite index rose 2.9 per cent and the Hang Seng in Hong Kong added 2.7 per cent.
Liu Ligang, ANZ’s chief economist, called the reforms “groundbreaking” and “unprecedented”.
“If implemented masterfully, we have no doubt China will return to a sustainable growth path. Indeed, a golden decade of sustainable growth and unparalleled prosperity has just started.”
But Jim Reid, macro strategist at Deutsche Bank, sounded a note of caution.
“Our view is that while these reforms are a step in the right direction, the difficulty will be in the implementation given there are interest groups in government and in the state-owned sector which will be resistant to change,” he said. “Some have criticised the reforms as not going far enough on political reforms. Others have suggested that the reforms do not directly address bank non-performing loans.”
The improvement in risk appetite triggered by Beijing’s blueprint for reform helped push both the Australian and New Zealand dollars up 0.1 per cent against their US counterpart.
That reflected broad weakness for the US dollar as the markets focused on the prospect of continued asset purchases by the Federal Reserve. Janet Yellen, the nominee for chair of the US central bank, last week struck a dovish tone at a confirmation hearing to the Senate banking committee.
Her robust defence of the Fed’s quantitative easing programme was interpreted by many as suggesting her policy approach would differ little from that of the current chairman, Ben Bernanke. As such, investors will be hunting for clues on the timing of any “tapering” of the Fed’s asset purchases from the minutes of the central bank’s October policy meeting, due for release on Wednesday.
“The policy statement from the…meeting was interpreted as being less dovish than expected, leaving the door open for the Fed to potentially begin QE tapering by the upcoming December or January FOMC meeting,” said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi UFJ.
“The release of the accompanying minutes from that meeting may provide further clarity.”
Comments from a number of Fed officials yesterday offered only limited insight into the US policy outlook
The dollar index, a gauge of the UScurrency’s value against a weighted basket of counterparts, was down 0.1 per cent as the euro edged up 0.1 per cent to $1.3503 and the US unit slipped 0.3 per cent against the yen to trade back below the Y100 mark.
Steve Barrow, currency strategist at Standard Bank, said the dollar looked likely to remain stuck for now in the range between Y95 and Y100 in which it has traded for some time.
“The next significant rally in dollar/yen will come when the Bank of Japan steps on the monetary gas again, and that seems likely next spring,” he said.
US and German government bond prices maintained their upward momentum, with the 10-year Treasury yield down 3 basis points at 2.68 per cent and the Bund yield 3bp lower at 1.68 per cent.
Industrial commodities traded with a weaker bias, with Brent crude settling 3 cents softer at $108.47 a barrel, after a choppy session, and LME copper off 0.5 per cent at $6,975 a tonne.
Gold was down $17, or 1.3 per cent, at $1,272 an ounce.
Get alerts on Central banks when a new story is published