World stocks rally as upbeat China, US data cement economic recovery hopes

China’s GDP grew by a record 18.3% in Q1 and US retail sales rebounded 9.8% in March

In this photo provided by the New York Stock Exchange, specialist Michael Gagliano works at his post on the floor, Thursday, April 15, 2021. U.S. stocks are rallying toward records on Thursday after a suite of encouraging data showed how hungry Americans are to spend again, how fewer workers are losing their jobs and how much fatter corporate profits are getting. (Courtney Crow/New York Stock Exchange via AP)

Global stocks stood near record highs on Friday after strong US and Chinese economic data cemented expectations of a solid global recovery from the coronavirus-induced slump.

European shares are expected to inch higher, with Euro Stoxx futures up 0.1 per cent and Britain’s FTSE futures slightly higher.

MSCI’s broadest index of Asia-Pacific shares outside Japan was last up 0.25 per cent, with Shanghai shares adding 0.6 per cent. Japan’s Nikkei ticked up 0.1 per cent.

MSCI’s broadest gauge of world stocks ticked up 0.05 per cent by late Asian trade, staying just below Thursday’s record peak.

Markets look ahead to economic normalisation as vaccines will go around

“Markets look ahead to economic normalisation as vaccines will go around. Stock prices are likely to rise gradually while looking at upcoming earnings,” said Tomo Kinoshita, global market strategist at Invesco Asset Management in Tokyo.

Markets in Asia were largely steady after China reported record 18.3 per cent growth in the first quarter, though the reading slightly undershot expectations, while retail sales bounced strongly last month.

The data did little to change the view that its brisk expansion is expected to moderate later this year as the government turns its attention to reining in financial risks in overheating parts of the economy.

“Regulators might make further efforts to cool down the property market and control domestic leverage. Fiscal discipline might also be strengthened, leading to deceleration in local government financing and infrastructure investment,” said Chaoping Zhu, global market strategist at J.P. Morgan Asset Management in Shanghai.

Data from the US overnight was also upbeat, with retail sales rebounding 9.8 per cent in March, pushing the level of sales 17.1 per cent above its pre-pandemic level to a record high.

The brightening economic prospects were underscored by other data, including first-time claims for unemployment benefits tumbling last week to the lowest level since March 2020.

“The US recovery looks really strong. And now that restaurants and hotels, both of which are labour-intensive, are reopening, we could see sharp gains in payrolls in coming month,” said Koichi Fujishiro, senior economist at Dai-ichi Life Research.

Despite strong data, US bond yields dropped, in part driven by Japanese buying, as they have began a new financial year this month.

The 10-year US Treasuries yield dropped to 1.529 per cent, a five-week low, on Thursday and last stood at 1.578 per cent , off its 14-month high of 1.776 per cent set at the end of March.

“The market has already fully priced in an US economic recovery in the near term. And if the Federal Reserve will keep interest rates on hold for the next two to three years, no doubt the carry of US bonds would be very attractive compared with Japanese or eurozone bonds,” said Chotaro Morita, chief fixed income strategist at SMBC Nikko Securities.

The fall in long-term bond yields benefited stocks, and particularly tech shares, given the idea that their historically expensive valuations can be justified because investors would have no choice but to buy shares to make up for low returns from bonds.

On Wall Street, the S&P 500 advanced 1.11 per cent while the tech-heavy Nasdaq Composite added 1.31 per cent, nearing its record peak set in February.

The market has already fully priced in an US economic recovery in the near term

In the currency market, lower US yields were a drag on the US dollar.

The euro stood at $1.1951, having hit a six-week high of $1.19935 overnight while the US currency slipped to a three-week low of 108.61 yen and last traded at 108.89.

Gold also hit a seven-week high of $1,769 per ounce and last stood at $1,765.50.

Oil prices hit one-month highs on higher demand forecasts from the International Energy Agency and Opec, in addition to positive US and Chinese data.

Brent futures gained 0.6 per cent at $67.37 per barrel, while US crude rose 0.55 per cent to 63.81 per barrel.