Chinese stocks lift world markets
Wall Street set for new high
WORLD shares set up camp at one-year peaks yesterday as a rally in Chinese stocks helped offset news that Japan’s growth had ground to a halt in the last quarter, while oil prices extended their latest rally.
Wall Street looked set to add to last week’s string of all-time highs while London, Frankfurt and Paris were up 0.2 percent to 0.4 percent as health care and energy stocks kept them buoyant in Europe.
China stood out in Asia as the CSI300 index jumped 3.3 percent to a seven-month high amid expectations for more stimulus from Beijing.
“The big complacency is back again in some sense. It is all a bit easy,” said SEB investment management head of global asset allocation Hans Peterson. “Luckily we went quite long of risk after Brexit and now we have taken a bit off. Technically one should note that volatility is extremely low and that is usually a reason to be on your toes.”
The need for further policy action in Japan was underlined by its subdued second-quarter economic reading, leaving the Nikkei down 0.3 percent.
MSCI’s broadest index of Asia-Pacific shares outside Japan recouped early losses to edge up 0.2 percent. It has climbed 14 percent since June when Britain’s vote to leave the EU unleashed a new wave of global policy stimulus.
All this easing has pushed rich-world bond yields dramatically lower and driven investors to seek higher returns in longer-term debt and in emerging markets.
Yields on British 10-year gilts more than halved to alltime lows of 53 basis points (bps), having been up at 1.39 percent just before the Brexit vote.
That has pulled down rates right across Europe. German Bunds were at a deeply subzero minus 0.16 percent ahead of US trading and Spanish yields were comfortably under 1 percent at 0.92 percent having falling over 60 bps in the last couple of months.
The plunge in returns on bonds has made equities look more attractive in comparison.
The Dow, S&P 500 and Nasdaq all made record closing highs last week for the first time since 1999. Emerging market stocks have surged by almost a third since mid-January.
Inflation figures
High on the US calendar this week are inflation figures for July and minutes of the last Federal Reserve meeting which might offer more clues on the chance of an interest rate hike by year-end.
There are also five separate Fed speakers on the docket this week.
US retail sales growth was unexpectedly flat in July as consumers cut back on buying clothes and other goods, while the producer price index fell 0.4 percent in July, the biggest drop in nearly a year.
The European Central Bank releases minutes of its last meeting on Thursday, and should strike a dovish tone.
Investors have recently lengthened the odds on any Fed hike this year, with futures implying around a 46 percent chance of a move in December.
That in turn has weakened the bullish case for the US dollar and dragged it down against the euro, yen and a range of emerging market currencies.
In commodity markets, oil prices crawled higher after boasting gains of 6 percent last week as Saudi Arabia’s oil minister held out the chance of action to help stabilise the market.
Brent crude futures gained as much as 35 cents yesterday to $47.67 a barrel before losing traction, while US crude eased back after touching $45.15.
Coal has also been on a roll, but so too has safe-haven gold.
It was up 0.4 percent at $1 340 (R18 005) an ounce and is now up 25 percent since the start of the year.