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Shares get China stimulus, bonds show the burden

LONDON (Reuters) – For the third consecutive day, world equities climbed on Tuesday as China pledged fiscal support to support the world's second-largest economy, and stellar results from internet giants Alphabet underpinned technology stocks.

FILE PHOTO: The London Stock Exchange Group offices will be on December 29, 201

7 in the City of London. REUTERS / Toby Melville / File Photo

Global bonds remained under speculative pressure the Bank of Japan trim its massive appeal. The euro was uneasy as a collapse in French business confidence was offset by the strength of German industry.

European equities also rose, also thanks to some positive results from UBS, the car company PSA and the chipmaker AMS [.EU]but also in the slipstream of Asian and Wall Street gains. [.EU]

China's government bond yields jumped and the offshore yuan reached an annual low after the Beijing Cabinet announced that it would pursue a more vigorous fiscal policy and put traders on further easing of monetary conditions.

Shanghai Blue Chips closed 1.5 percent at a one-month high [.SS] and the Japanese Nikkei contributed 0.5 percent, although a disappointing assessment of factory activity indicated that the threat of a trade war began to materialize ,

"The big story is that the Chinese currency continues to slide," said FX strategist Societe Generale's Alvin Tan.

"It is clear that the government is moving towards a policy that supports growth," he added, adding that the trend is likely to trigger a response from the United States in good time.

The E-Mini-Futures for the S & P 500 gained 0.2% as the European stock exchanges beat higher.

Tech shares received a boost from Alphabet, Google's parent company, which rose 3.6 percent to a record high after hours, valuing the group at $ 870 billion.

Compensated for an otherwise boring Monday on Wall Street, where the Dow fell 0.06 percent, the S & P 500 0.18 percent, and the Nasdaq 0.28 percent.


Bond bulls were still struck by speculation that the Bank of Japan would cut back monetary stimulus measures nearby, a risk that raised long-term borrowing costs worldwide.

A man looks at an electronic stock price board outside a brokerage in Tokyo, Japan, February 9, 2018. REUTERS / Toru Hanai

Markets were worried that Japanese investors would have less incentive to hunt offshore for yield, said ANZ economist Felicity Emmett.

"The steepening of the Japanese yield curve by 10 basis points is huge in the context of a market that rarely moves more than 1 basis point," she said. "It reflects a broader fear that central banks will reduce their purchases while the supply of US bonds will rise significantly." As a result, 10-year US Treasury yields reached their highest level in five weeks, around 2.96 percent, again approaching the 3 percent mark.

Yields on German government bonds rose to a five-week high of 0.416 percent. Most other Eurozone yields were 1-3 basis points higher [GVD/EUR].

"Global equities, especially Asian equities, have been buoyed by (potential) monetary easing in China, which supports the overall risk sentiment and puts some pressure on the bond markets," said Commerzbank strategist Rainer Guntermann.


Part of the yield variation was caused by the discussion that Friday's data on economic growth in the second half of the year would exceed current forecasts of 4.1 percent.

Traders noted some media reports that President Donald Trump predicted an exit of 4.8 percent. That would not be out of bounds, given that the Atlanta Fed's widely acclaimed GDP tracker is setting growth at an annualized 4.5 percent.

Such a strong result would only increase the risk of faster rate hikes by the Federal Reserve and support the dollar.

Against a basket of currencies, the dollar fluctuated at 94,616, compared with a low of 94,207 on Monday. He bought 111.19 yen, against the Monday of 110.75.

The Euro fell to $ 1.1690 after beating overnight at a high of $ 1.1750 in profit-taking. Turkey's lira fell 0.5 percent and staggered, before another significant rate hike later on.

Commodity oil prices remained unchanged as focus was on oversupply concerns and escalating tensions between the US and Iran. [O/R]

U.S. Crude added 2 cents to $ 67.91. Brent rose 10 cents to $ 73.17 a barrel.

Spot gold barely moved at $ 1,224 an ounce.

Additional coverage by Wayne Cole in Sydney and Abhinav Ramnarayan in London; Edited by Larry King

Our Standards: The Thomson Reuters Trust Principles.

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