A financial trader at his desk at CMC Markets in the City of London, Britain, on April 11 2019. Picture: REUTERS/PETER NICHOLLS
A financial trader at his desk at CMC Markets in the City of London, Britain, on April 11 2019. Picture: REUTERS/PETER NICHOLLS

London — Surprisingly upbeat economic soundings from China lifted the global markets mood on Monday, pushing world shares towards an 18-month high and steering the Aussie dollar and copper upwards.

Investors are waiting for a torrent of second-quarter corporate earnings this week and a G7 finance chiefs meeting in France, but there is plenty to be getting on with before that.

China's second-quarter annual GDP growth rate fell to a 27-year low of 6.2% as expected, but its quarterly growth reading of 1.6% was ahead of forecasts and June reports on industrial production, retail sales and urban investment were also well above expectations.

Shanghai and Hong Kong stock markets had ended marginally positive, only held back by the concern that such a brisk pickup in activity may see economic policymakers ease back on the monetary and fiscal stimulus measures that were deemed largely responsible for the acceleration.

A report by Reuters that Washington may approve licences for companies to restart new sales to Huawei in as little as two weeks also improved the mood in China’s tech sector, while a steady start in Europe left MSCI's world index eyeing February 2018 highs.

"It is no surprise that China is slowing down and if you look at the other components of the data like retail sales and industrial production, they are looking a little bit better than expected," CMC Markets analyst David Madden said.

"Traders seem to be content to maintain a bit of optimism."

With the S&P 500 closing in record territory again on Wall Street on Friday and above 3,000 for the first time, markets are confident the U.S. Federal Reserve will cut its key interest rate by at least 25 basis points later in July.

In currency markets, the Australian dollar, often played as a liquid proxy for the Chinese yuan, sprang to its highest since July 4 against the dollar as it ticked higher against the yen and the Swiss franc.

At 12.39%, the Vix volatility gauge had its lowest close since April. Ten-year treasury yields continued to nudge higher, with the yield curve between three months and 10 years — whose inversion for much of the past two months was widely seen as a harbinger of recession over the next couple of years — back probing positive territory for the first since mid-May.

Most eurozone government bond yields edged down from recent three-and-a-half-week highs in early moves, although the reassuring signs from the global economy meant the moves were small in scale.

Germany's benchmark 10-year bond yield was down just a basis point at minus 0.25%, edging off Friday's three-and-a-half-week high but still about 16 basis points above record lows reached earlier in July.

"The whole movement in bonds lost steam last week," said Norbert Wuthe, a rates strategist at Bayerische Landesbank.

Relief

Commodities markets struggled to make up their minds about how to interpret the Chinese data.

Brent crude was off 10 US cents at $66.62. US crude fell 21c to $60 a barrel, although that also came after both contracts had posted their biggest weekly gains in three weeks on diplomatic tensions in the Middle East and cuts in US oil production.

Gold slipped to 1,414.25/oz, drifting away from a recent six-year top of $1,438.60, but most industrial metals climbed on the data and nickel prices were boosted by additional supply worries from major producer Indonesia.

"This [China data] is a big relief. It seems that the government's support has eventually had some positive impact on the economy, especially in the seasonally weak month of June,"  Argonaut Securities analyst Helen Lau said.

Later in the week, US retail sales and industrial production data will provide clues about the health of the world's largest economy. The US Federal Reserve will release its “Beige Book” on Wednesday, which investors will scour for comments on how trade tensions were affecting the business outlook.

Reuters