Stocks push higher on China stimulus hopes

Equities updates

Stock markets in Europe and Asia started September in positive territory after weak Chinese manufacturing data raised hopes that policymakers in Beijing could take action to boost growth in the world’s second-largest economy.

The region-wide Stoxx 600 equity gauge rose 0.8 per cent after notching up its seventh consecutive month of gains in August. London’s FTSE 100 also gained 0.8 per cent.

In Asia, Hong Kong’s Hang Seng index rose 0.6 per cent, the Topix in Tokyo gained 1 per cent and mainland China’s CSI 300 added 1.3 per cent. Brent crude, the international energy benchmark, rose 0.5 per cent to $71.99 a barrel ahead of a meeting later on Wednesday of Opec and its allies.

The moves came after Caixin’s manufacturing purchasing managers’ index, an independent survey of Chinese factory activity, dropped below the 50 level that separates monthly expansion from contraction for the first time since April 2020. This followed slowdowns in industrial production and export growth last month, travel curbs to control the spread of the Delta coronavirus variant, a regulatory clampdown on the education and technology sectors and curbs on bank lending designed to cool a property boom.

Daiwa economist Chris Scicluna said the latest data had “consolidated opinion that [China’s] policymakers will bring forth more stimulus before long”.

Investors in Europe and the US had previously factored in a broad slowdown in China but the flurry of recent weak data was now driving a “bad is good approach, which predicts more policy easing”, said Barclays head of European equity strategy Emmanuel Cau.

In debt markets, the yield on the 10-year Treasury bond added 0.02 percentage points to 1.326 per cent ahead of US jobs market data on Friday.

Analysts polled by Bloomberg expect Friday’s monthly non-farm payrolls report to show the US economy added 750,000 jobs in August. The US central bank has pledged to keep buying $120bn of Treasuries and mortgage-backed securities monthly until it sees substantial progress towards its goal of maximum employment, while also signalling it might dial back this crisis-era monetary support towards the end of this year.

The dollar index, which measures the US currency against those of other major economies, rose 0.1 per cent. The euro was steady at $1.1803 while sterling was also flat at $1.3754.

Futures markets signalled US stocks would continue to move higher on Wednesday despite a survey from the Conference Board showing that confidence among US consumers hit a six-month low in August because of surging Delta cases and rising inflation.

Contracts that wager on the direction of Wall Street’s S&P 500 rose 0.4 per cent after the index ended August with its seventh straight month of gains.

“The [equity] market should be factoring in a temporary slowdown in economic activity but [it] is not,” said Sebastian Galy, senior macro strategist at Nordea Asset Management.

Instead the low income yields on government bonds, which have been depressed by monetary stimulus from the Fed as well as the European Central Bank, continued to feed a “lack of alternatives mindset” that kept investors buying equities, Barclay’s Cau said.

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