Stock Market News: U.S. and European Stocks Hit Records After China Data Boost

♦ European Stocks – U.S. Stocks ♦

Stock Market TodayU.S. stocks traded at record levels and those in Europe hit a fresh high on Friday. The region-wide Stoxx Europe 600 index rose 1 per cent for its fourth straight day of gains. Paris’s CAC 40 climbed 1 per cent, while Frankfurt’s trade sensitive Xetra Dax was 0.7 per cent higher.

Wall Street reached fresh peaks, with the S&P 500 up 0.2 per cent, a day after the index closed above 3,300 for the first time, boosted by technology and financial stocks. On Friday, 10 of 11 S&P 500 sectors were in positive territory, led by communication services and utilities.

The rally received support from a preliminary survey showing consumer sentiment held relatively steady in January at strong levels, while the rate of new home construction accelerated to its highest level in 13 years.

In other US data, manufacturing output improved month-to-month in December, despite forecasts for a decline. A drop in heating demand weighed on overall industrial production, which fell 0.3 per cent. The report comes on the heels of an upbeat readings on manufacturing activity on the east coast.

“The latest surveys suggest that the tentative recovery in manufacturing output is a sign of things to come in 2020,” said Andrew Hunter, senior US economist at Capital Economics.

The benchmark S&P 500 set a pace for its strongest weekly performance since August, aided this week by optimism over the US-China trade pact.

Across the Atlantic, UK government bonds rallied and sterling slipped following the release of weak consumer data. Britain’s retail sector contracted in December, marking the longest spell of no growth since records began in 1957 and adding to pressure on the Bank of England to cut interest rates.

The disappointing data swiftly sent the pound 0.6 per cent lower against the dollar to $1.3025. By the afternoon, sterling was still down 0.4 per cent while the yield on the 10-year gilt slipped 0.3 basis points to 0.629 per cent.

Signs that the Bank of England is poised to cut rates also sent the pound tumbling earlier this week, falling below the $1.30 for the first time in 2020.

The weakness in sterling helped London’s FTSE 100, with its global-facing companies, rise to its highest level since late July 2019. London’s blue-chip index is well placed to benefit from a softer pound as the bulk of its revenue is earned abroad.

The MSCI world index also hit highs, gaining 0.6 per cent as risk-on sentiment continued to permeate global markets in the aftermath of the reduced tensions between the US and China.

China’s gross domestic product grew 6.1 per cent in 2019, data earlier on Friday showed, hitting analysts’ expectations but also revealing the economy grew at its lowest rate since 1990.

Still, analysts noted that growth picked up last month, helping to avert a further slowdown in the fourth quarter. Robert Carnell, chief economist for Asia-Pacific at ING, said the numbers suggested the economy had stabilised “following exhaustive efforts by the government and central bank”.

“That job isn’t over, and the external backdrop is still very challenging.”

Asian markets also rose following the data release, with Hong Kong’s Hang Seng closing up 0.6 per cent and China’s blue-chip CSI 300 rising 0.1 per cent. The Chinese benchmark index has gained 8.5 per cent since the beginning of December, fuelled in part by improving trade relations with the US. The renminbi strengthened to a six-month high.

Gold, a safehaven asset, gained 0.4 per cent at the end of the week. Brent crude was up 0.3 per cent, in its second consecutive day of gains.

Eurozone Bond Auctions Enjoy Record Demand

Stock Market News — Records have tumbled across eurozone bond markets this week as investors queue to lend to governments, betting that interest rates in the currency bloc will stay at rock bottom for the foreseeable future.

Spain amassed €53bn of bids for its new 10-year bond on Tuesday — the most ever for any euro bond — in a sale that raised €10bn. Italy came close to breaking that record with €47bn of orders for its new €7bn 30-year bond, while Belgium, Cyprus and Ireland have all racked up their biggest-ever order books in recent days.

Fund managers have piled in to all but the lowest-yielding debt, calculating that Christine Lagarde, the European Central Bank chief, will stick with the stimulus policies, including negative interest rates and buying €20bn in bonds a month, introduced by her predecessor Mario Draghi.

“It seems likely that interest rates will stay at this level for a very long time,” said Mark Dowding, chief investment officer at BlueBay Asset Management. Mr Dowding, who favours higher-yielding eurozone debt issued by Italy and Greece, said that investors had to pay punitive negative rates to store their cash with custodian banks in the euro area.

“We don’t want to sit on cash, so we need to find ways to earn a bit of yield. It’s in that context that people are putting their money to work at the start of the year.”

Despite a flurry of bond sales in January, usually the busiest month for markets, 2020 as a whole is expected to see the smallest net issuance of new debt in the eurozone since the financial crisis. Some investors are rushing to snap up the plentiful supply of new bonds while they can.

“What is striking is that we have seen better demand than 2019, which was already an exceptional January,” said Pierre Blandin, a senior debt banker at Crédit Agricole.

Public debt managers have been keen to take advantage of the benign market conditions. “We saw this as an opportunity in terms of the rate environment to lock in rates for a big amount [of debt],” said Maric Post, director of Belgium’s debt agency, which sold €6bn of 10-year bonds on Wednesday at a yield of 0.11 per cent.

But buyers have been notably less enthusiastic about the lowest-yielding debt. Two recent auctions of German bonds, known as Bunds, which serve as a benchmark for the entire eurozone and mostly trade at sub-zero yields, met with weak demand as an easing of tensions in the Middle East led investors to shun the very safest assets.

Investors are betting instead that stable interest rates will allow them to eke out gains by buying bonds that offer some extra yield, or spread, above German debt.

“Everything that has some extra spread compared to the Bund will get bought,” said Mr Post. “We are profiting from that.”

What investors are not forecasting is a repeat of 2019, when rate cuts in the US and eurozone fuelled sweeping gains for holders of both haven bonds and riskier debt

“It’s probably a year of not much happening with central banks,” added Andrew Wilson, global head of fixed income at Goldman Sachs Asset Management. “That is a pretty good backdrop for spreads.”


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One thought on “Stock Market News: U.S. and European Stocks Hit Records After China Data Boost

  1. Pingback: U.S. and European Stocks Hit Records After China Data Boost via /r/economy | Chet Wang

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