China reform plans lift world shares to six-year high
LONDON – World shares hit a near six-year high on Monday, boosted by signs of ambitious economic reform in China and the prospect of extended stimulus in the United States.
China’s offshore share market put on 5.7 percent .HSCE in its best day in two years after the Communist Party in Beijing late last week unveiled surprisingly bold economic reforms in which it said the market would play a decisive role.
UBS upgraded H-shares – Chinese stocks listed in Hong Kong – to “overweight” on a view the string of growth-friendly reforms announced after a party plenum should help them outperform Asia excluding Japan for the next few months.
After five weeks of steady gains, European shares .FTEU3 saw a subdued start to the week. Britain’s FTSE 100 .FTSE, Germany’s DAX .GDAXI and France’s CAC 40 .FCHI opened between 0.1 and 0.3 percent lower.
Domestic Chinese shares in Shanghai rose 2.9 percent .SSEC and Asia-Pacific shares outside Japan .MIAPJ0000PUS added 1.4 percent to lift MSCI’s world share index .MIWD00000PUS to its highest level since the start of 2008.
“China is obviously important long term for the market so it is going to welcome that they have a ten-year plan, that it is sensible, that it is not too radical and that it is a move towards reform,” said Joe Rundle head of trading at ETX.
Analysts at ANZ said the planned changes represented “the biggest freeing up of China’s economic policy since the 1990s” and, if implemented successfully, would “substantially reduce the downside risks to China’s economy.”
MORE FROM THE FED
In the currency market, the dollar was back below 100 yen, but at 99.94 was not far from its two-month high of 100.43. It was steady against the euro, with the common currency worth $1.350, having edged slowly higher for the past week or so as tapering talk has weighed on the dollar.
Last week, the woman expected to be the next Federal Reserve chief, Janet Yellen, sounded in no rush to scale back stimulus, reinforcing market speculation that any move was more likely in March than December.
This is another important week for U.S. monetary policy with several central bankers due to speak, including outgoing Fed chairman Ben Bernanke on “Communication and Monetary Policy” on Tuesday.
On Wednesday, the Fed releases minutes from its October policy meeting, which will get trawled for hints on when it might start winding back its asset-buying program.
“If Fed officials think a December tapering is a realistic possibility, some hints to that effect would presumably make their way into the minutes this week,” said Michelle Girard, chief US economist at RBS.
“Just making clear that policymakers were open to taking action in December if the economic data showed the impact of the government shutdown was limited would likely suffice to shift expectations.”
Girard still believes March is the more likely window for a move, if only because bond markets are typically very thin in December so a taper then could risk major dislocation.
ITALIAN DEBT EXCHANGE
The Bank of Japan holds a policy meeting on Wednesday and Thursday and is expected to maintain its ultra-loose policy. The BOJ has been the most aggressive of any major central bank in its asset buying, putting downward pressure on the yen in the process.
Tokyo’s Nikkei .N225 was little changed after touching a six-month peak earlier on Monday. Last week, the index amassed its biggest weekly rise in four years.
In the European debt market, Italian bonds edged higher before a debt exchange aimed at easing its 2015 and 2017 repayment burden with prospects of ultra-easy ECB monetary policy countering worries about budget slippage. <GVD/EUR>
The European Commission warned Italy on Friday its draft budget for next year risked breaking EU rules. Keeping the budget gap under control is crucial for Rome as it tries to manage a 2 trillion euro debt pile.
In commodity markets, spot gold was a touch lower at $1,284.50 an ounce, having crawled away from last week’s trough of $1,260.89.
Brent crude for January delivery eased 47 cents to $108.03 a barrel. U.S. crude for January shed 32 cents to $93.52, having suffered a sixth weekly drop last week due to a larger-than-expected rise in inventories.