Upbeat signs renew taste for dollar and commodities

Investors rediscovered a taste for the dollar and commodities yesterday, as upbeat Chinese and US economic news whetted appetite for riskier assets globally, while tensions over North Korea simmered in the background.

One big gainer was US petrol, which surged 6 per cent to two-year peaks as flooding and damage from Tropical Storm Harvey shut nearly a quarter of US refinery capacity. Prices are up more than 20 per cent in the past week.

Adding to the bullish mood, a survey showed Chinese factory growth unexpectedly accelerated in August, confounding forecasts for a slight slowdown. The official PMI firmed to 51.7, from 51.4 in July.

That gave a boost to industrial metals, with copper nearing its highest since late 2014 and on track for gains of 7 per cent for August.

European shares also firmed, with London’s FTSE, Germany’s DAX and France’s CAC40 ahead by 0.6 - 0.8 per cent. Euro-zone inflation marginally beat forecasts, which should give the European Central Bank heart when it meets next week.

Wall Street futures pointed to 0.3 per cent gains for the main S&P 500, Dow and Nasdaq markets. Traders there will also be digesting inflation data as a debate continues about whether the Federal Reserve will raise US interest rates again this year.

“It is almost like we have ended up with a default riskon [scenario], which is in part predicated on the very benign pricing for what central banks do next,” said the head of global macro strategy at State Street Global Markets, Michael Metcalfe.

“And that is why the inflation numbers now will be important,” especially with energy prices and commodity prices having risen over the last couple of months. “The period where we could have expected favourable inflation numbers [for keeping interest rates low] may have passed.”

In Asia, Japan’s Nikkei had closed up 0.7 per cent, its best level in two weeks, helped by a pull-back in the yen.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged down on the day as emerging market stocks more broadly also took a breather.

But August has been their eighth straight month of gains – their best run since 2003 and driving an almost 30 per cent surge in EM equities this year.

The yuan posted its biggest monthly gain, in percentage terms, since the Chinese currency was revalued and taken off a fixed dollar peg in 2005.

The onshore yuan has risen just over 2 per cent against the dollar in August, a sizeable gain for a currency that typically trades in a wafer-thin range.