LONDON (Reuters) – World shares hit a 20-month high on Friday as encouraging data from the United States and China boosted prospects for the global economy, while the yen hit new lows ahead of next week’s Bank of Japan meeting.
China’s economy grew at a slightly faster-than-expected 7.9 percent in the fourth quarter of 2012, the latest sign it is pulling out of a post-global financial crisis slowdown that produced its weakest year of economic growth since 1999.
The positive news came on top of strong U.S. labor and housing market reports on Thursday, providing fresh impetus to a recent strong and broad financial market rally.
MSCI’s index of leading world shares <.miwd00000pus> hit its highest level since May 2011 at 552.16 points after Tokyo and Hong Kong stock markets surged and the S&P 500 in New York hit a five-year high.</.miwd00000pus>
Industrial commodities and oil also benefited, with palladium reaching a 16-month high and platinum a three-month high, while Brent crude added 28 cents to stand at $ 111.38 a barrel by 1030 GMT.
“We’ve got good numbers out of China, we had some good numbers out of U.S. yesterday … The general sentiment is pretty good,” said Neil Marsh, strategist at New edge.
“There will probably be some phases of consolidation as we go forward, but the markets remain pretty resilient. More people are putting their cash to work now in riskier assets like equities, and there is no sign of that stopping at the minute.”
European stocks were mostly higher by mid-morning, with London’s FTSE 100 <.ftse> and Paris’s CAC-40 <.fchi> up 0.4 and 0.2 percent, respectively, but Frankfurt’s DAX <.gdaxi> was 0.1 percent in the red <.l><.eu><.n>.</.n></.eu></.l></.gdaxi></.fchi></.ftse>
British retail sales posted a surprise monthly fall in December, dashing hopes that Christmas shoppers would provide a last-minute boost to an economy on the verge of another contraction.
Like much of Europe, consumer spending in Britain has come under pressure from a combination of below-inflation wage growth, worries about the economy and government austerity measures. 䄀 “What is disappointing is that, after about a year of a pick-up in retail activity, the high street seems to have stalled again over the past few months. We’re looking at modest growth in the British economy over 2013,” said Phillip Shaw, an economist at Investec.
YEN SLIDE RESUMES
The strong U.S. data and mounting expectations for more aggressive easing by the Bank of Japan (BOJ) next week lifted the dollar as high as 90.21 yen, its highest since June 2010, and the euro to its peak since May 2011 of 120.73 yen.
The single currency was starting to lose ground against the dollar as midday approached, trading down 0.2 percent at $ 1.3350.
Expectations that the new Japanese government will pursue massive fiscal spending and push for more aggressive BOJ easing to drive Japan out of years of deflation and economic slump have spurred heavy yen selling since November.
Sources told Reuters the BOJ will at its January 21-22 meeting consider removing the 0.1 percent floor on short-term interest rates and commit to open-ended asset buying until the 2 percent inflation target is reached.
“A lot is priced in for next week’s BOJ meeting. If asset purchases by the BOJ were unlimited, that could lead to significantly higher levels in dollar/yen and euro/yen levels,” said Peter Kinsella, currency strategist at Commerzbank. “Levels past 93-95 yen within the next two-three weeks is not unreasonable.”
LTRO ANTICIPATION
U.S. stock futures pointed to a broadly steady restart on Wall Street after the S&P 500 climbed to a five-year high on Thursday.
In bond markets, German two-year government bond yields rose 0.25 percent to near their highest in nearly 10 months, with traders citing growing concerns over potentially large scale early repayments of the ultra-cheap three-year loans the European Central Bank flooded markets with from late 2011.
The ECB will on January 25 publish how much will be repaid in the January 30 first round of repayments. A larger-than-expected return of around 400 billion euros would effectively tighten money market conditions and push up the price banks charge to lend to each other.
“The (German) front-end is being hit by the LTRO story,” one bond trader said. “My view is it’s oversold, but there’s something else at play there, so it’s very difficult to trade against it.”
(Reporting by Marc Jones; Editing by Will Waterman)
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