LDN - Business

World stocks hit 1-1/2 year high after strong China data

[January 05, 2017] By Abhinav Ramnarayan

LONDON (Reuters) - World stocks hit their highest level since mid-2015 on Thursday after strong Chinese data added to the optimism about global growth and inflation that has been driving markets since the start of the new year.

Growth in China's services sector accelerated to a 17-month high in December, a private sector survey showed, adding to upbeat factory and service sector surveys out of the United States, Europe and Asia released this week.

In addition, minutes from the U.S. Federal Reserve's December meeting showed that many of the central bank's policy makers are expecting a pick-up in economic growth and inflation in the world's biggest economy as a result of fiscal, regulatory or other policies.

The MSCI world equity index <.MIWD00000PUS>, which tracks shares in 46 countries, was up 0.4 percent at one stage to hit its highest level since July 2015. At that level it was up over 1.5 percent for the year so far.

The index was pushed up by Asian shares, which rose for the eighth consecutive day on Thursday
European shares held steady near recent highs.

"While I am always cautious about December data because of seasonal factors, we certainly have seen across the board positive PMI data in Japan, China and the UK as well this morning," said Investec economist Victoria Clarke.

Britain's economy finished 2016 strongly, growing at the fastest rate since mid-2015, an industry survey showed on Thursday.

"TRUMP MOMENTUM"

Stocks and bond yields have been rising ever since the election of Republican Donald Trump as U.S. president on expectations that fiscal stimulus will boost growth and inflation. Trump's inauguration takes place on Jan. 20.

"There seems to be a continuation of the Trump momentum we saw in December, and this promises to be the prevailing mood until we get into the detail of what Trump will actually do and the battles he may have with Congress," said Investec's Clarke.

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A stock quotation board displaying Japan's Nikkei average is seen before a ceremony marking the end of trading in 2016 at the Tokyo Stock Exchange (TSE) in Tokyo, Japan December 30, 2016. REUTERS/Toru Hanai

The minutes of the U.S. Federal Reserve's December meeting showed that policymakers were keen to emphasize the uncertainty of the outlook even while anticipating better growth and inflation for the U.S. economy.

"The FOMC's minutes to its Dec meeting released post yesterday's European close could best be characterized as perhaps tilted toward the hawkish side but tempered by a heavy dose of uncertainty," said Rabobank strategist Richard McGuire.

"All the policymakers emphasized the uncertainty of the outlook, reminding investors that the outlook is more nuanced than the market seems to think," he said.

With just two weeks to go before Trump takes over, investors and policymakers are waiting to see if his actions match his rhetoric and if his policies will be approved by Republican lawmakers.

The dollar extended its losses on Thursday, falling 0.42 percent against a basket of six major currencies - though still near the 14-year high hit on Tuesday - following losses against the Chinese yuan.

China stepped into both its onshore and offshore yuan markets to shore up the faltering yuan for a second day on Wednesday, sparking speculation that it wants a firm grip on the currency ahead of Trump's inauguration.

(Additional reporting by Saikat Chatterjee; Editing by Gareth Jones)

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