Asian and European stocks rally on robust Chinese economic data

Asian and European stocks rallied on Wednesday as robust Chinese manufacturing data lifted investors’ spirits following muted trading the previous day.

Hong Kong’s Hang Seng index closed up 4.2 per cent and China’s CSI 300 rose 1.4 per cent. Europe’s region-wide Stoxx 600 was up 0.3 per cent, Germany’s Dax added 0.7 per cent and France’s Cac 40 gained 0.8 per cent. The FTSE 100 rose 0.9 per cent.

Figures released on Wednesday showed that China’s manufacturing sector expanded at its fastest pace in more than a decade, in an unambiguous signal that its economy was rebounding after the lifting of the punitive zero-Covid regime.

According to China’s National Bureau of Statistics, the official manufacturing sector purchasing managers’ index was 52.6 last month, up from January’s 50.1 and higher than economists’ expectations of 50.5. A figure of more than 50 indicates growth in the number of companies reporting expansion. The reading is at its highest level since April 2012.

Chinese households’ excess savings are also likely to accelerate growth in the world’s second-largest economy, according to Citibank Asia analysts.

“China has returned to work with a sense of urgency after the Chinese new year and with Covid concerns behind. The sizeable excess household savings provide a support for ‘revenge spending’ in the initial stage of the recovery,” they said in a note.

The rally offers some relief after a dismal month for equities in February. Successive releases of robust economic data on both sides of the Atlantic persuaded investors that inflation and thus interest rates would stay higher for longer.

“It was a pretty bad month on the whole, with losses across equities, credit, sovereign bonds and commodities,” said analysts at Deutsche Bank. “That came amidst growing concern about inflation, which led investors to ramp up their expectations for central bank rate hikes.”

Investors will be watching next week for the latest signals on inflation from payroll and unemployment data out of the US. While the Federal Reserve has struck a consistently hawkish tone, officials at the European Central Bank have expressed differences in opinion, with governing council member François Villeroy de Galhau saying on Wednesday that it would be “desirable” for rates to peak by summer.

“You’d expect more [diversity of opinion] in the ECB, as they have to deal with national biases, whereas the Federal Reserve only has to take regional ones into account,” said Neil Birrell, chief investment officer at Premier Miton.

US futures climbed on Wednesday, with the blue-chip S&P 500 rising 0.3 per cent and the tech-heavy Nasdaq gaining 0.5 per cent.

The dollar fell 0.6 per cent, while the euro rose 0.9 per cent. Sterling was up 0.2 per cent, paring earlier gains after Bank of England governor Andrew Bailey suggested markets were wrong to believe many more rate rises would be necessary to tame inflation.

However, analysts said they expected the dollar to remain strong — the greenback is up 0.7 per cent this year.

“I’m not convinced it’s going to be a straight line down, if anything there will be more volatility,” said Francesco Pesole, FX strategist at ING, in reference to the US currency. “Overall risk sentiment is too fragile to allow for a sustained downturn as the Federal Reserve story is still negative and rhetoric is on the hawkish side.”

In government debt markets, the yield on US 10-year Treasuries rose 0.01 percentage points to 3.92 per cent, while the yield on two-year notes, which are more sensitive to monetary policy, gained 0.03 percentage points to 4.82 per cent. Ten-year German Bund yields rose 0.04 percentage points to 2.68 per cent.

Brent crude fell 0.8 per cent to $84.08 per barrel, while WTI, the US equivalent, lost 1.1 per cent, falling to $76.21.

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