Global shares rise as firmer Chinese yuan eases deflation fears
World stocks rose on Monday as China's central bank fixed the yuan at a much stronger rate and oil prices held on to recent gains, easing fears of global deflation.
The rally belied a string of poor economic data from Beijing to Tokyo as demand for safe-haven assets waned, yet investors remained on edge as concerns lingered about glob- al growth and the health of the financial sector. European stocks rose 3 percent .FTEU3, having shed nearly 10 percent over the last fortnight, following a similar bounce in Asia. Futures pointed to notional gains of more than 1 percent on Wall Street ESc1 but U.S. markets will be closed for a holiday. Meanwhile, assets that tend to perform well in times of stress lagged. The Japanese yen lost ground against the U.S. dollar while top-rated German bond yields pulled away from nine-month lows hit last week. "We had a very strong statement from the Chinese authorities signaling they are committed to a stable currency and that's helped sentiment ... safehaven flows have unwound somewhat," said RIA Capital Markets strategist Nick Stamenkovic.
In China, spot yuan jumped more than 1 percent to 6.4934 per dollar - its firmest this year - after the People's Bank of China set its daily midpoint 0.3 percent stronger and the head of the bank was quoted as saying speculators should not be allowed to dominate market sentiment.
A stronger yuan reduces the risk that China will export deflation to the world, while worries about consumer price growth have also been helped by a surge in the oil price late last week. Brent LCOc1 and U.S. crude futures CLc1 edged lower on Monday but held on to most of a 10 percent surge from Friday that came amid renewed talk that the Organization of the Petroleum Exporting Countries (OPEC) might finally agree to cut output to reduce a world glut. China's weak exports and imports in January, down 11.2 percent and 18.8 percent year-on-year respectively, seemed not to disturb markets. The resulting jump in the country's trade surplus to $63 billion for the month might have helped, as that may offer support to the yuan.
The disconnect between markets and economics was perhaps starkest in Japan, where the Nikkei . N225 jumped more than 7 percent, putting its worst week since the depths of the global financial crisis in 2008 quickly behind it. This came despite data showing the economy contracted by an annualized 1.4 percent in the last three months of 2015, more than expected. MSCI's broadest index of Asia-Pacific shares outside Japan rose 2.3 percent . After losing 10 percent of its value so far this year. European shares followed in their wake, led by a 3 percent rebound in banking stocks . SX7P on news that the European Central Bank (ECB) is in talks to buy bundles of Italian bad bank loans as part of its asset-purchase program.