Shares surge on China's factory rebound, trade optimism

[April 01, 2019]   By Ritvik Carvalho

LONDON (Reuters) - Global stocks surged on Monday, extending gains from their best quarter since 2010, as strong Chinese factory activity data and signs of progress in U.S.-China trade negotiations gave investors reason to cheer.

European stocks posted their best daily gains since mid-February, with the pan-European STOXX 600 index up 0.8 percent. Germany's trade-sensitive DAX outperformed with a 1 percent rise, helped by gains in auto maker stocks. [.EU]

MSCI's All-Country World Index, which tracks shares in 47 countries, was up 0.4 percent on the day. It had just posted its best quarter since 2010. S&P 500 futures were up about 0.7 percent, indicating a higher open on Wall Street. [.N]

"Investors' sentiment seems to be tilting to the side of optimism at the beginning of the second quarter, following a robust manufacturing report from China," said Konstantinos Anthis, head of research at ADSS.

China's official purchasing managers' index (PMI) released on Sunday showed factory activity unexpectedly grew for the first time in four months in March. A private business survey, the Caixin/Markit PMI, released on Monday, also showed manufacturing.

"This news helps ease market participants' worries over the odds of an upcoming recession on a global scale, even though there are plenty of signs suggesting caution," Anthis said.

Recent signals from bond markets have alerted investors to the possibility of an slowdown in the global economy. Yields on short-dated government bonds in the United States had fallen below those of longer-dated bonds - a phenomenon known as yield curve inversion, which has preceded every major recession.

"We don't see recession in 2019 or early 2020 — we believe the Federal Reserve unambiguously ending three years of tightening, and other central banks’ dovish tilts, have extended the cycle," wrote Bob Michele, CIO and head of global fixed income at J.P. Morgan Asset Management in a note to clients.

"We left the probability of recession unchanged at 10 percent, although even a minor policy error could raise that."

The 3-month-to-10-year yield spread has since pulled back from negative territory and stood around 3 basis points.

TRADE OPTIMISM

Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan added 1 percent and the Shanghai Composite Index rallied 2.6 percent.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, March 29, 2019. REUTERS/Staff

Australian stocks climbed 0.6 percent, South Korea's KOSPI gained 1.3 percent and Japan's Nikkei advanced 1.4 percent.

"The rebound (in the Chinese data) likely reflects both the resumption of production after the Chinese New Year break and renewed stimulus and policy easing," UBS strategists wrote in a note to clients.

"We expect China to continue easing policy, with signs of economic stabilization backing our overweight position on offshore Chinese equities in our Asia portfolios."

Stocks in Asia also took their cues from Wall Street, with the S&P 500 posting its best quarterly gain in a decade on Friday amid trade optimism.

The United States and China said they made progress in trade talks that concluded on Friday in Beijing. Washington called the negotiations "candid and constructive".

In currencies, the dollar fell 0.18 percent against a basket of currencies to 97.112.

Sterling was over half a percent higher to the dollar at $1.3104 on Monday as investors prepared for British parliament to vote on a series of Brexit options. Some hoped the current uncertainty will end in a softer Brexit than Prime Minister Theresa May's defeated withdrawal agreement.

The Australian dollar advanced as much as 0.45 percent to $0.7127, also benefiting from the China data. The Aussie is sensitive to shifts in the economic outlook for China, the country's main trading partner. It last traded 0.25 percent higher at $0.7113.

The euro rose 0.1 percent to $1.1230.

Oil rose, building on its largest first-quarter gains in nearly a decade, as tight supply and positive signs for the global economy supported prices.

U.S. West Texas Intermediate futures gained 0.95 percent to $60.71 per barrel. Brent was 1.3 percent higher at $68.47 per barrel.

(Reporting by Ritvik Carvalho, additional reporting by Shinichi Saoshiro in Tokyo; editing by William Maclean, Larry King)

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