Stocks push higher on US and China stimulus hopes

Equities updates

Wall Street and European stock markets started September on a cautiously positive note, balancing signs that the global recovery from Covid-19 was moderating against the potential for extended support from central banks.

The technology-focused Nasdaq Composite inched up 0.3 per cent to claim a fresh record high, though the blue-chip S&P 500 index closed flat after giving up its early gains in afternoon trading.

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

In Asia, Hong Kong’s Hang Seng index rose 0.6 per cent and the Shanghai Compsite was up 0.7 per cent, while in Tokyo the Nikkei Average and the Topix both closed 1.3 per cent and 1 per cent higher respectively.

The positive moves came despite a series of lacklustre economic updates on Wednesday. Emmanuel Cau, Barclays head of European equity strategy, said “investors are taking a ‘bad is good’ approach, which predicts more policy easing” to offset any slowdown.

Across the Atlantic, data from the payroll services group ADP showed a much weaker than expected increase in private sector hiring. Employers added 374,000 jobs in August, compared to average estimates of 618,000.

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

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 March 2020 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 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.”

Wednesday’s data had little impact on US government debt, as investors awaited a more closely-watched government report on non-farm payrolls which will be published on Friday. The yield on the benchmark 10-year note, which rises when prices fall, was unchanged for the day in the New York afternoon at 1.30 per cent.

Eurozone debt markets were similarly quiet, with the yield on Germany’s 10-year Bund rising 0.01 percentage points to minus 0.38 per cent. Still, the small increase, following a sharper rise on Tuesday, was enough to bring it to its highest level since mid-July.

Consumer price inflation in the eurozone hit a decade high of 3 per cent in August, prompting the Dutch central bank governor Klaas Knot to tell Bloomberg 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 dollar index, which measures the US currency against those of other major economies, fell 0.1 per cent. The euro rose 0.3 per cent against the dollar to $1.1838 while sterling also added 0.1 per cent to $1.3767.

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