World shares close to two-year highs and fourth weekly gains

London — World shares were eyeing two-year highs and a fourth straight week of gains on Friday as the third US interest rate cut of the year and a surprise bounce in Chinese manufacturing activity eclipsed a blizzard of otherwise sickly global data.

Reports of more US-China trade difficulties, impeachment strains on Washington, the first day at the European Central Bank (ECB) without former president Mario Draghi, and monthly US jobs figures were all in the mix too, but markets marched on.

Europe’s Stoxx 600 index started 0.3% higher, led by a 0.4% rise in Germany’s China-exposed firms after the overnight news that China’s factory activity expanded at its fastest pace in more than two years in October.

That helped Asia too. Chinese blue chips jumped 1.7% in their best day since mid-August, Seoul’s Kospi rose 0.77%, and Hong Kong’s Hang Seng added 0.65% despite data confirming protests there had pushed city into its first recession in a decade.

“The [Chinese] numbers are good, given they came ahead of expectations and expansion is always a welcome,” said David Madden, an analyst at CMC markets in London.

There had been a slight wobble in sentiment overnight after a Bloomberg report citing unnamed Chinese officials airing doubts about whether a comprehensive long-term trade deal is possible. Efforts by Washington and Beijing to end their bruising nearly 16-month trade war had appeared on track on Thursday. US President Donald Trump said the two sides would soon announce a new venue for the signing of a phase one trade deal, after protests in Chile had seen a planned summit there canceled.

China’s doubts were “not entirely unexpected”, Greg McKenna, strategist at McKenna Macro, said in a note to clients, saying that the falls in equity markets overnight were relatively small. “Either way, today’s deluge of manufacturing PMIs then US non-farm [payrolls] will be an important factor in where markets head next.” 

Payrolls figures are always closely scrutinised by traders as they are seen as an up-to-date gauge of US economic health. Forecasts this time are for 89,000 new jobs in October, which would be well below September’s 136,000 and the recent average.

There will also be the ISM manufacturing PMI reading, which is expected to see a rise to 48.9 from 47.8 in September. A separate PMI survey from the Chicago Fed on Thursday showed a sharper contraction in Midwestern manufacturing activity for October.

The expectation of more soft data kept the dollar down against the yen at ¥107.97 and on track for its biggest weekly loss against the Japanese currency since October 4. It was also at a 10-day low against the euro at $1.1165, still struggling after the Federal Reserve cut US interest rates for a third time this year on Wednesday.

Eurozone government bond yields steadied near two-week lows, meanwhile, on course for their biggest weekly decline in five weeks as Christine Lagarde officially began her presidency of the ECB. Analysts said the resumption of asset purchases by the ECB this week had also been helping the bond markets, though focus is already turning to what Lagarde will do during her eight-year term.

The decision to resume asset purchases has divided the central bank and fueled a perception in markets that the bar to further monetary easing is now high. Having discounted an ECB deposit rate of close to -0.8% just a couple of months ago, the market no longer expects another cut of 10 basis points in 2020.

“It’s pretty clear that Lagarde has an uphill task in trying to promote unity that leads to a coherent set of policies,” said Philip Shaw, chief economist at Investec. “Her own views can be characterised as continuity with” Draghi.

Among the main commodities, oil prices were little changed on Friday but set for a slide of about 3.5% on the week hurt by rising global supply and concerns about future demand.

Despite the positive China surprise, Japanese factory activity sank to more than a three-year low in October data there had shown. Japan is the world’s third largest economy.

US crude oil inventories rose by 5.7-million barrels in the week to October 25 too, dwarfing analyst expectations for an increase of just 494,000 barrels. Brent crude ticked up 27c, or 0.4%, at $59.89 a barrel by 9.55am GMT, on course for a drop of about 3.4% for the week. West Texas Intermediate crude rose 32c to $54.50 a barrel, which would leave it with a weekly loss of more than 3.8%.

Reuters