China inflation relief sends equities, dollar higher

Dhaka,  Thu,  27 October 2016
Published : 14 Oct 2016, 21:28:23

China inflation relief sends equities, dollar higher

BERLIN, Oct 14 (Reuters): Global stocks and the dollar edged up on Friday, erasing some losses from the previous day, as stronger-than-expected Chinese inflation data eased some concerns about the health of the world's second-biggest economy.

The pound also found traction following recent weakness after the governor of the Bank of England said he was "not indifferent" to the foreign exchange rate.

September producer prices in China unexpectedly rose for the first time in nearly five years, while consumer inflation also beat expectations, setting the tone for equity markets globally.

European shares tracked Asian markets higher. The pan-European STOXX 600 was up 1.5 per cent, helped by rallies in mining and banking stocks, while MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS ended up 0.6 per cent.

E-mini S&P futures ESc1 were up 0.5 per cent

However, equities were still set for their largest weekly drop in over a month after a week which has seen expectations of a Federal Reserve rate hike build and substantial volatility in commodity prices.

While the MSCI World .WORLD index was up 0.3 per cent on Friday, it was down 1 per cent for the week - its biggest weekly drop since early September.

"Inflation has been quite a worry for some time, but the PPI number today is a very nice change, and a much better number than the negative numbers we had prior. So that gives us a bit of confidence," said Veronika Pechlaner, European equity fund manager at Ashburton, who said that the falls this week were not a major cause for concern.

"The market felt exuberant heading into this week... We've had a strong couple of months, so now a bit of normalization is coming through."

The dollar index rose 0.3 per cent to 97.834 .DXY, and was set for a weekly gain. It was down slightly from a seven month high touched on Thursday.

Retail sales data and remarks from Federal Reserve Chair Janet Yellen and Boston Federal Reserve President Eric Rosengren were due later in the day. The Fed's minutes from its September meeting prompted investors to raise their bets on a December rate rise, and fueled the rally in the greenback this week.

The strength of both domestic and global growth will be a key consideration for the Fed, demonstrated when weak Chinese export numbers on Thursday not only hit global equities but also stopped a rise in US yields and halted the dollar's advance.

Even despite Friday's inflation data, Chinese stock ended little changed on Friday as investors wrestled with the mixed economic picture. The producer price increase will be good news for profits and for Beijing as the government struggles to reduce a mountain of corporate debt. ECONCN

The greenback, which slid Thursday to 103.340 yen on the Chinese trade data, gained 0.7per cent to 104.36 yen JPY=, edging back toward a 2-1/2-month peak of 104.635. It was on track to gain 1.3 per cent on the week.

Having started the day with further falls, sterling recovered all of the day's losses against the dollar on Friday after Bank of England Governor Mark Carney said the bank was not indifferent to the level of the pound, now down almost 20 per cent since Britain voted to leave the European Union in June.

The pound had been pressurized by comments by European Council President Donald Tusk, who will run the Brussels side of Britain's negotiations on leaving the EU, that the bloc will not offer London any softer terms than a "hard Brexit". Such a deal would end Britain's membership of the single market and disrupt access to the country's main trading partner.

The euro slipped 0.4 per cent to $1.1018 EUR= after seeing a 2-1/2-month low of $1.0985 on Thursday. The common currency was en route for a 1.7 per cent weekly loss. European bond yields edged higher ahead of Yellen's speech.
Editor : A.H.M Moazzem Hossain
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