LONDON (FT): Global equities bounced on Friday as China announced new economic stimulus measures ahead of trade talks between Washington and Beijing that investors hope will brighten sentiment following a bruising first week of the year.
Equities have endured a testing start to 2019, with a warning late on Wednesday from Apple over its China sales fanning concerns that a weaker global economy will hit corporate profits just as central banks provide less support to markets.
Chinese premier Li Keqiang on Friday urged banks to step up their lending to the private sector, while the People’s Bank of China cut a key reserve ratio in a move designed to encourage more lending from commercial banks. The moves came after China said that government officials will on Monday hold their first formal trade talks since the world’s two largest economies struck a truce.
European equities and US stock futures stayed higher after the latest US jobs report smashed economists’ expectations. The economy created 312,000 jobs in December, beating forecasts of 184,000. Average hourly earnings growth accelerated to 3.2 per cent from 3.1 per cent in November.
“From a stock market perspective, with a lot of negative news already priced in, we could realistically hope that the absence of further negatives may at least lead to some stabilisation in equity prices,” said Colin Morton, a portfolio manager at Franklin Templeton Investments.
The CSI 300, a benchmark index for Chinese equities, closed 2.4 per cent higher, up off a three-year low. In Europe the benchmark Stoxx Europe 600 was up 1.4 per cent. Bond prices weakened further, sending the yield on the benchmark 10-year Treasury up 7 basis points to 2.62 per cent.
Earlier on Friday the People’s Bank of China’s cut in the reserve ratio will inject a net Rmb800bn ($117bn) into the economy. The size of the cut was at the high end of analyst expectations. It was the biggest net cash injection in five such measures undertaken by the central bank since last January as part of government moves to counter slowing growth.
Geoffrey Yu, head of the UK Investment Office at UBS Wealth Management, called the People’s Bank of China’s 1 per cent cut to its reserve requirement rate “swift”, and said the action “supports our view that there won’t be a sharp deceleration in the Chinese economy this year and that fears of a major global slowdown are overdone.”
The US jobs figures will draw particularly close scrutiny after a survey of the US manufacturing sector for last month proved much weaker than expected yesterday, feeding some investors’ concern that the US economy risks slowing significantly this year.
This week’s turbulence in equities — the S&P 500 closed down 2.5 per cent and the Nasdaq tumbled 3 per cent yesterday — has added fresh momentum to a rally in government bonds that began in late November and made December the best month for global sovereign bonds in more than a month.
Sentiment was also helped on Friday after a gauge of China’s services sector showed continued expansion in December, snapping a run of worrisome data.
Koon Chow, strategist at UBP, said that investors had appeared this week to be “over-anxious about what could be a typical ebb and flow in the global growth cycle”, adding: “I’m more sanguine as recessions tend to be caused by a financial market or specific shock or an asset bubble collapsing. I’m not sure this is the case right now.”
