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Equities rose in Europe and rallied in Asia on Friday as hopes of a thaw in US-China relations boosted investor sentiment despite worries about central banks withdrawing their crisis-era support for financial markets.
The Stoxx Europe 600 share index gained 0.2 per cent in early trades while London’s FTSE 100 added 0.4 per cent. Hong Kong’s Hang Seng rose 1.9 per cent, although it has still lost almost 10 per cent this quarter, weighed down by a regulatory clampdown on private businesses by the Chinese government.
US president Joe Biden held a “broad strategic discussion” with his Chinese counterpart Xi Jinping on Thursday, the White House said. Biden has yet to meet Xi and has so far maintained a hard stance on China, criticising Beijing for cracking down on Hong Kong’s pro-democracy movement and undertaking military manoeuvres near Taiwan.
“Any news that makes us think that the relationship between the [world’s] two largest economies, which are so integrated in terms of the global production cycle, is going to be positive for market risk appetite,” said Silvia Ardagna, Barclays’ chief European economist.
The CSI 300 index of mainland Chinese stocks rose 0.9 per cent. Tokyo’s Nikkei 225 added 1.3 per cent, in a continuation of a rally prompted by speculation that the replacement for departing prime minister Yoshihide Suga will unleash a wave of economic stimulus.
Futures markets signalled that Wall Street’s blue-chip S&P 500 share index would rise 0.3 per cent in early New York dealings, after falling for the past three sessions as speculation increased about the Federal Reserve tightening monetary policy.
A survey of leading academic economists conducted for the Financial Times found that just over 70 per cent of them expect the Fed to begin raising interest rates next year after rapidly winding down its coronavirus-era stimulus programme.
In debt markets, the yield on Germany’s 10-year Bund fell 0.02 percentage points to minus 0.349 per cent as the price of the security rose. The yield on the equivalent Italian government bond fell 0.03 percentage points to 0.6782, down from close to 0.8 per cent earlier in the week.
The European Central Bank said on Thursday it would “moderately” slow bond purchases made as part of its €1.85tn emergency monetary stimulus programme which is likely to expire next year. ECB president Christine Lagarde then signalled that the bond-buying programme would continue in another form in 2022, saying “there remains some way to go before the damage done to the economy by the pandemic is undone”.
The yield on the 10-year US Treasury note fell 0.02 percentage points to 1.321 per cent.
In currencies, sterling rose 0.3 per cent against the dollar to $1.3878 despite data showing UK economic output in July expanded at its slowest pace since January. Traders are betting on the Bank of England raising interest rates next year after the central bank forecast consumer price inflation could accelerate to 4 per cent in the autumn.
The dollar index, which measures the US currency against six others, was flat. Brent crude, the oil benchmark, rose 1.4 per cent to $72.44 a barrel in response to prolonged production delays caused by Hurricane Ida.
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