European and Chinese markets rise with gold at a nine-year high

London — European shares rose on Thursday after a two-day wobble, as Chinese markets continued their charge, while investors propelled gold to a nine-year high.

Chinese stocks set their longest winning streak in two years, and the yuan had strengthened past 7/$ overnight, despite rising tension over Hong Kong and the economic uncertainty caused by Covid-19.

It was the Shenzhen blue-chip index’s eighth straight day of gains, adding another 1.5% to its 15% surge this month, and it helped Europe on an upward trajectory after initial hesitation caused by uninspiring German data.

Also improving risk sentiment was the dollar’s downward momentum — it was at a one-month low against the euro, a three-week low compared to the pound and a four-month trough against the Swiss franc.

Wall Street was set for a steady start but the dollar’s lethargy was a green light for emerging markets (EM) too.

MSCI’s EM currency index was at a one-month high, with the equities equivalent at its highest since late February. Trade and commodity-related currencies also reacted to China’s surge. The New Zealand dollar was at its highest since January and the Aussie dollar at a one-month high.

“We’ve seen a more generalised view back to riskier assets. The Chinese equity surge has been the poster child for risk-on moves across the last few sessions,” said Jeremy Stretch, CIBC Capital Markets’ head of G10 forex strategy.

Asia’s investors have been riding high after a front-page editorial in Monday’s China Securities Journal that extolled market fundamentals, which was taken as official encouragement to buy stocks. State-run media warned on Thursday that investors should still pursue rational investments and manage risks, but that didn’t rein in the bulls.

MSCI’s broadest index of Asia-Pacific shares excluding Japan rose 0.8% and touched a 20-week high. The yuan rose to a four-month high as it broke through the 7/$barrier.

“Broadly speaking, the Chinese economy is coping better not only with a recovery but also in dealing with the potential of a second wave [of infections],” said National Australia Bank forex strategist Rodrigo Catril. “Rightly or wrongly, that market is liking the idea that the yuan can strengthen on the back of equity inflows.”

Deutsche Bank’s chief international strategist Alan Ruskin said the yuan enjoyed the “perfect combination” of tight monetary policy, yield advantage and equity demand.

Though China’s factory-gate prices fell for a fifth straight month in June, signs of a pick-up suggest a slow but steady recovery remains intact.

In Europe though, Britain suffered another 5,000 high street job losses and Germany’s export figures recovered less than expected in May as demand remained subdued despite lockdowns being lifted in large parts of Europe.

Still going for gold

The Chinese rally came despite growing pressure from the West over Beijing’s tightening grip on Hong Kong, surging US coronavirus cases and a fresh lockdown of almost 5-million Australians in Melbourne.

Australia’s benchmark ASX 200 index rose 1% and Japan’s Nikkei rose 0.6%. The Australian dollar rose 0.2% to $0.6995, but — perhaps indicating a cap on exuberance — it was unable to break past resistance at $0.70.

US treasuries were not sold into the rally, though. Nor were the safe havens of gold or the yen. The yield on benchmark US 10-year treasuries remained under pressure at 0.6545% and gold sat at $1,810 an ounce.

The precious metal has now surged nearly 20% this year, making it the best-performing global asset barring the supercharged FAANG tech stocks, which have soared nearly 50%.

The US earnings season approaches, with investor hopes high for a stabilisation, but warning signals are flashing and US Federal Reserve officials raised fresh doubts on Wednesday about the durability of the rebound.

The US has also posted its largest number of daily new coronavirus cases since the pandemic began and global tensions are on the rise. US jobs data out ahead of the start of trading showed just more than 1.3-million unemployment claims. Next Tuesday will see results from JPMorgan, Citigroup and Wells Fargo, then Microsoft and Netflix on Thursday.

“Earnings season is upon us, and we really want to see what it looks like,” said Jun Bei Liu, a portfolio manager at Australia’s Tribeca Investment Partners.

Reuters