Friday 9 December 2016

Asian shares rise after China stimulus step

Published 01/03/2016 | 07:57

China's economy is growing at its slowest rate in 25 years. (AP)
China's economy is growing at its slowest rate in 25 years. (AP)

Asian shares shrugged off their early doldrums on Tuesday and extended gains, boosted by China's monetary easing and downbeat manufacturing and service surveys that raised hopes of additional stimulus measures.

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But after lackluster U.S. and European data kept alive concerns about global growth momentum, European shares could struggle at the start. Britain's FTSE 100 is expected to open down 0.7pc, Germany's DAX is likely to fall 1.1pc, and France's CAC 40 is seen down 1.3pc, according to spreadbetting firm IG.

"The manufacturing sector continues to display worrying signs of a gradual slowdown," said Michael Hewson, chief market analyst at CMC Markets.

"Today's latest February manufacturing PMI numbers from Spain, Italy, France and Germany are expected to reinforce these concerns, with both the German and French measures expected to show stagnation," he said in a note to clients.

MSCI's broadest index of Asia-Pacific shares outside Japan rose about 1.1pc, while Japan's Nikkei erased losses and ended up 0.4pc.

The Shanghai Composite Index was up 1.3pc in afternoon trade, and the CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 1.6pc.

An official survey showed activity in China's manufacturing sector shrank for a seventh straight month in February, more sharply than expected, while the services sector continued to expand although at its slowest pace since late 2008.

The private Caixin/Markit China Manufacturing Purchasing Managers' Index also fell, falling short of both market expectations and the previous month's reading.

On Monday, the People's Bank of China (PBOC) said on its website that it cut its reserve requirement ratio, or the amount of cash that banks must hold as reserves, by 50 basis points.

"We think the PBOC easing is consistent with continued weaker-than-expected economic activity and downside risks to growth," wrote Jian Chang, an analyst at Barclays. "It should help to support market sentiment in the near term."

China's move, combined with a drop in crude output from OPEC and the United States, and a pledge by Saudi Arabia to limit market volatility, lifted crude oil futures overnight and helped them post their first positive month in four.

Crude extended those gains in Tuesday's choppy session. Brent futures LCOc1 rose 1pc to $36.92 a barrel, while U.S. crude futures CLc1 were up 0.9pc at $34.06 after surging 3pc overnight.

Wall Street shrugged off Monday's higher oil prices and finished lower, with MSCI's global stocks index logging its fourth straight losing month.

Downbeat U.S. data revived concerns about the strength of the economy. Contracts to buy previously owned U.S. homes fell to their lowest level in a year in January, while the Chicago Purchasing Manager's Index - a leading indicator of the U.S. economy's health - contracted to 47.6 in February.

The latest figures followed last week's spate of strong data, including improving consumer spending, that had suggested the U.S. economic recovery was on track and the Federal Reserve could still raise interest rates again this year.

Figures released on Monday showed euro zone annual inflation fell back into negative territory last month, adding to the pressure facing the European Central Bank to further ease monetary policy this month.

All 18 euro money-market traders polled by Reuters expect the ECB to cut its deposit rate again at its March 10 meeting, and they said there was an even chance it would also increase its monthly asset purchases.

Those expectations weighed on the euro, which edged up about 0.1pc to $1.0884 but remained not far from a one-month low of $1.0859 struck on Monday.

Against the perceived safe-haven yen, the common currency clawed back some territory and rose 0.2pc to 122.73 EURJPY=R, after earlier dropping as low as 122.085, which was its lowest level since April 2013.

The dollar was buying 112.75 yen, edging up about 0.1pc.

The Australian dollar added 0.2pc against its U.S. counterpart to $0.7155, taking back ground lost after the Reserve Bank of Australia left its cash rate unchanged at a record low 2.0pc as expected.

Reuters

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