World shares gain as China data fuels bets on growth

[January 17, 2020]  By Tom Wilson

LONDON (Reuters) - World shares rose to record highs on Friday, buoyed by Chinese growth figures that suggested the world's second-biggest economy was stabilizing.

Riskier assets were in demand worldwide as the Chinese growth data, along with easing trade tensions with the United States, sent the MSCI world equity index up 0.2% and further into record territory.

China's economy grew 6% between October and December last year. Anaemic domestic demand and the trade war with the United States led to growth of 6.1% in 2019, the slowest in 29 years.

But the data reinforced recent signs of an improvement in Chinese business confidence as trade tensions eased after Beijing and Washington signed an initial deal on Wednesday to defuse their tariff war.

Investors were turning their attention to what many see as improved prospects for growth across the world. European shares gained 0.9% by late morning, with Frankfurt and Paris up around 0.7%.

Shares in London, sensitive to currency moves, gained 0.9% after sterling slipped on signs of economic weakening that could prompt the Bank of England to cut interest rates this month.

Wall Street futures were also pointing up.

The Chinese data fueled a rise in the Chinese yuan, which touch a six-month high of 6.8660 to the dollar.

"Investors that were last year buying risky assets rather defensively - not really removing their hedging - right now are deploying cash," said Olivier Marciot, a portfolio manager at Unigestion.

"A number of investors that were sitting on big piles of cash are starting reallocating. People are unloading cash positions into financial assets."

In France, however, protests against planned pension reforms started to hit major retailers. Supermarket Casino slumped as much as 12% after slashing its forecast for 2019 operating profit growth because of the damage from transport strikes in the fourth quarter.

Asian markets also rose after the Chinese data, with MSCI's broadest index of Asia-Pacific shares outside Japan gaining 0.3%.

China's own blue-chip index ended 0.1% higher, down from an earlier rise of as much as 0.7%. The index has rallied more than 8.5% since the beginning of December, fueled by hopes for improved trade relations with the United States.

Shares in Australia and South Korea both rose, with Japan's Nikkei climbing to a 15-month high.

The London Stock Exchange Group offices are seen in the City of London, Britain, December 29, 2017. REUTERS/Toby Melville

"This is all good news and positive for the China story," said Daniel Gerard, senior multi-asset strategist at State Street Global Markets in Hong Kong.

MAINTAIN MOMENTUM?

Still, analysts say global equities may find it difficult to maintain momentum as optimism over the trade truce gives way to uncertainty over the next steps in trade talks.

While the Phase 1 deal signed on Wednesday may defuse the 18-month trade row, analysts said it was unlikely to ease broader friction between the two countries.

Most of the tariffs imposed during the dispute remain in place and a number of issues that sparked the conflict are still unresolved.

"The challenge from here is how long we can maintain these improvements," said Steven Daghlian, market analyst at CommSec in Sydney.

In currency markets, sterling was last down 0.4% at $1.3020 as investors priced in a higher chance of an interest rate cut after weak retail sales data.

Data this week suggesting weakness in inflation, growth and production numbers has raised the likelihood of a 25 basis point cut to rates in January to nearly 70%, according to Refinitiv data.

The dollar held steady, reaching eight-month highs against the yen after upbeat earnings from Morgan Stanley, rising U.S. retail sales, a strong labor market and robust manufacturing data had on Thursday helped to lift Wall Street to record highs. [.N]

Google's parent, Alphabet, became the fourth U.S. company to top a market value of more than $1 trillion. Its shares were up nearly 17% over the last three months.

The index that tracks the dollar against a basket of six major rivals was last up 0.2 at 97.488.

For Reuters Live Markets blog on European and UK stock markets, please click on: [LIVE/]

(Reporting by Tom Wilson in London and Andrew Galbraith in Singapore; additional reporting by Noah Sin in Hong Kong; editing by Shri Navaratnam, Larry King, Chizu Nomiyama)

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