Stocks push higher on US and China stimulus hopes

Equities updates

Wall Street and European stock markets started September on a cautiously positive note as signs that the global recovery from Covid-19 was moderating expectations of crisis-era monetary support policies remaining in place.

The S&P 500 opened up 0.2 per cent, putting Wall Street’s blue-chip stock index on track for its latest closing high following seven straight months of gains to the end of August. The technology-focused Nasdaq Composite rose 0.6 per cent, building on its record high reached in the previous session.

In Europe, the region-wide Stoxx 600 index added 0.4 per cent while London’s FTSE 100 gained 0.5 per cent.

The moves came after a monthly report on Wednesday showed that US private sector employers added 374,000 jobs in August, far fewer than than the 618,00 new roles economists polled by Reuters had predicted. The government’s more closely watched non-farm payrolls report for August is due on Friday.

In China, Caixin’s manufacturing purchasing managers’ index indicated that the sector was contracting for the first time since April 2020, fuelling speculation that policymakers in Beijing will take steps to boost economic growth.

“Investors are taking a ‘bad is good’ approach, which predicts more policy easing”, said Barclays head of European equity strategy Emmanuel Cau.

Federal Reserve chair Jay Powell signalled at the Jackson Hole central bankers’ symposium last week that the $120bn of monthly bond purchases the Fed has conducted since last March could be dialled back this year. But he also pledged to maintain the bond purchases, which have helped to depress income yields on low-risk government bonds and increased the relative appeal of equities, until there was “substantial further progress” in employment.

“The labour market is a central component of the tapering discussion,” said Madison Faller, global market strategist at JPMorgan’s private bank.

“We are a long way from seeing a peak in labour market data and it is going to take a number of months, if not quarters, to get back to where we were before Covid.”

The dollar index, which measures the US currency against those of other major economies, fell 0.2 per cent. The euro rose 0.3 per cent against the dollar to $1.1844 while sterling also added 0.3 per cent to $1.3791.

In debt markets, eurozone bonds fell out of favour after an inflation surge increased pressure on the European Central Bank to discuss reducing the pace of spending under its €1.85tn pandemic emergency purchase programme at its meeting next week.

The yield on Germany’s 10-year Bund, which moves inversely to its price, touched minus 0.37 per cent on Wednesday morning, its highest since mid-July.

After eurozone consumer price increases hit a decade high of 3 per cent in August, Dutch central bank governor Klaas Knot told Bloomberg on Tuesday that the data could justify an end to crisis-mode monetary policy.

The Stoxx 600 banks index rose 1.3 per cent, lifted by expectations that higher bond yields, which influence the prices of loans, would increase lenders’ profits.

The yield on the 10-year Treasury bond was flat at 1.295 per cent as traders waited for Friday’s non-farm payrolls report, which economists expect to show US employers created 750,000 new jobs last month.

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