Investors shrug off reports of renewed China stimulus
World stocks are consolidating gains over the past week
London — World stocks consolidated gains on Wednesday after hitting a four-and-a-half month high last week as investors shrugged off reports of renewed China stimulus, while the Australian dollar took a knock from poor growth figures.
Risky assets have staged a remarkable comeback in the first two months of 2019 — an index of global equities is up 16% — as concerns that monetary policy would continue tightening despite a slowing global economy has given way to optimism that major central banks will remain dovish.
But despite signs of caution from the US Federal Reserve in recent weeks and expectations of a dovish European Central Bank at a meeting on Thursday, analysts say the broader underlying momentum of global economic data has struggled.
"One defining characteristic of the recent market rally has been the broad lack of participation from real money funds and the broader economic cycle continuing to show a slowing trend," said Shaniel Ramjee, a multi-asset manager at Pictet Asset Management based in London.
An MSCI index of global equities was broadly flat after hitting its highest level since October 10 last week. An MSCI Index tracking the performance of European stocks was down 0.2%.
Asian stocks had a more lively session thanks to a rally in Chinese stocks on expectations of more stimulus.
The Shanghai Composite Index rose more than 1.5%, hovering near a nine-month high, as China's state planner said the government will boost domestic consumption further in 2019.
Beijing announced billions of dollars in tax cuts and infrastructure spending on Tuesday to reduce the risk of a sharper economic slowdown.
MSCI's broadest index of Asia-Pacific shares outside Japan nudged up 0.1%. The positive news from China also rubbed off on emerging stocks with an index rising 0.1%.
However, expectations of more stimulus in China failed to lift the Australian currency, an asset that typically benefits from any positive news from Beijing, as data showed the economy slowed to a near standstill in the fourth quarter.
The Australian economy expanded just 0.2% in the fourth quarter, slower than the 0.3% increase economists had forecast in a Reuters poll fueling a selloff in the currency.
The Australian dollar slid 0.8% to $0.7028, its lowest since January 4.
"The key domestic demand components were all weak and our economists suggest the door for rate cuts has opened further," said Adam Cole, currency strategist at RBC Capital Markets.
In the bond markets, sentiment was a bit more cautious with longer-dated German bond yields edging lower a day before an ECB meeting where policy makers are expected to take a tentative step to shore up growth by signalling new stimulus to keep banks lending.
US crude oil futures were down 1% at $56.01 per barrel after data from the American Petroleum Institute (API), an industry group, showed a larger-than-expected increase in US crude stockpiles.
Brent crude eased 0.9% to $65.27 per barrel.