Global Markets Easy Fed outlook, China growth send shares to 5-year high, dlr to 8-mth low

Business & Markets 2013
Written by Reuters
Friday, 18 October 2013 20:03
A + A - Reset
(18/10/13 18:46:32)
* Focus turns to Fed stimulus prospects after government shutdown
* China Q3 growth quickens to 7.8 pct yr/yr
* World shares at 5-year high as European, Asian stocks add to gains
* Euro hits 8-1/2-month high vs dollar
* Gold heads for best week in two months
LONDON (Oct 18): Expectations that the Federal Reserve will keep its stimulus
in place for longer, following the confidence-sapping U.S. fiscal impasse,
pushed world shares to a five-year high and the dollar to an eight-month low on
Friday.
An acceleration in China's giant economy provided a further boost for stock
markets, as well as growth-linked commodities such as oil and copper, as the
prospect of an extended spell of super-easy money and improving growth,
buoyed investors.
European shares were up 0.3 percent around midday, with broadly even gains
for most of the region's major bourses, leaving them on course for a weekly
gain of 1.75 percent and hovering at their highest since mid-2008.
That followed solid gains across most of Asia, overnight.
Wall Street was expected to tick up 0.1-0.2 percent, after Thursday's record
close for the S&P 500.
As the U.S. debt drama faded, speculation grew over whether the likely hit to
growth from the wrangling, would see the Federal Reserve further delay cutting
back its stimulus — supporting riskier assets, but weighing on the dollar.
"The debate on the timing of QE tapering by the Fed, is quickly moving to whether it will be Q1, 2014, or Q2," said Derek Halpenny,
European head of global markets research for Bank of Tokyo-Mitsubishi.
"The dollar has been left vulnerable by this uncertainty, especially in circumstances of growth stabilising in China."
Traders were continuing to sell the greenback, versus a broad basket of currencies from both advanced and emerging economies.
The knock-on effect for Europe was a stronger euro and pound. The euro zone's shared currency hit an 8-1/2 month high of $1.3694, as
its recent strong run, following signs of a pick-up in the bloc continued.
"The euro itself has several factors that are certainly beneficial," said Vasileios Gkionakis, global head of FX Strategy for UniCredit. "The
recovery is on track and next week, we have the new PMI figures, which should support that view."
"I think we are also seeing central banks looking to diversify some of their dollar holdings into euros, and on top of that, at the last ECB
press conference, Mario Draghi didn't show any real concern about the strength of the euro."
China bulls shop
Investors were also relieved by data showing that China's economy grew 7.8 percent in the third quarter — its fastest pace this year and in
line with expectations, as firmer foreign and domestic demand lifted factory production and retail sales.
China's CSI300 index climbed 0.7 percent, while Australian shares jumped to their highest level since June 2008. Australian exports are
closely linked to China's economic fortunes.
"The Q3 GDP figure is in line with market expectations, but the uncertainty is whether the current recovery is sustainable," said Shen
Jianguang, chief China economist with Mizuho Securities in Hong Kong.
Though there was broad U.S. relief, investors were retaining some caution, following Wednesday's last-minute debt deal.
While it pulled the world's largest economy back from the brink of an historic default, it only funds the government until Jan 15, and raises
the borrowing limit through to Feb 7, meaning another political showdown could be on cards.
Markets are also bracing for a deluge of delayed U.S. economic data, over the next week.
A simple estimate suggested that the direct and indirect impact of this month's shutdown would weigh on annualised fourth-quarter gross
domestic product growth by 0.4 percentage point, analysts at Morgan Stanley wrote in a note to clients.
German Bunds were on course for a steady end, to a week of hefty gains, while in the euro zone periphery, only Portugal was in the red,
along with its main share market, as its debt concerns continued.
Benchmark 10-year U.S. Treasuries were trading with a yield of 2.5504 percent, ahead of the start of U.S. trading — a two-week low.
Yields move inversely to prices.
In commodity markets, China's stronger growth helped copper climb 0.6 percent to 7,273 a tonne, and Brent oil futures to hold above $109
a barrel, after a build-up of crude stocks in the United States pushed oil prices down overnight.
Meanwhile, gold took a breather after rallying almost 3 percent overnight — its biggest one-day rise in a month — as the dollar weakened.
It was steady at about $1,316 an ounce, and not far off a more-than one-week high reached on Thursday.