Global stocks shrug off weak economic data

London/Hong Kong — World shares climbed on Wednesday, shrugging off economic data that pointed towards weak economic growth, and started the month on the front foot as the dollar struggled to move away from three-week lows.

The Euro Stoxx 600 added 0.8% in early trading, with indices in Paris and London adding 1.2% and 0.7%, respectively. Travel & leisure and insurance stocks were among the top gainers.

Wall Street futures gauges also pointed to early gains of about 0.4%.

The upbeat tone for equities came in spite of signs that Asia’s factory activity lost momentum in August as a resurgence in coronavirus cases disrupted supply chains across the region.

The limp data is likely to raise concerns that faltering manufacturing will add to economic headaches caused by slumping consumption.

Investors are awaiting manufacturing activity and unemployment data for the eurozone later in the day. Still, many market players remained cautiously positive on prospects for equities in particular.

“We’ve clearly witnessed a deceleration of macro data from the months before,” said Olivier Marciot, senior portfolio manager with Unigestion.

“But we’re in the moment where it’s still semi-Goldilocks — there is the inflation element that is still for the moment being discarded by central bankers ... but earnings are very good, macro is very strong and still the central banks are remaining very accommodative.”

The MSCI world equity index, which tracks shares in 50 countries, gained 0.2%. Like the S&P 500, the MSCI index closed out its seventh straight month of gains in August, propelled by bets of continued central bank support.

The MSCI’s broadest index of Asia-Pacific shares outside Japan turned positive, adding 0.2% to its highest since early August, having posted gains in six of the last seven sessions.

The gains in Asia were in spite of China’s Purchasing Managers’ Index (PMI) showing a contraction in activity for the first time in almost 18 months, because of Covid-19 containment measures and supply bottlenecks.

“As China maintains its zero tolerance policy for Covid, they will continue to implement these lockdowns wherever there is a small outbreak, so that suggests growth might remain under pressure,” said Carlos Casanova, Asia senior economist at UBP.

Dollar lows

The dollar traded near its lowest point in nearly three weeks against major peers, with currency investors already focused on a key US jobs report due on Friday for clues on when the Federal Reserve might begin paring stimulus.

Fed Chair Jerome Powell has suggested an improvement in the labour market is one major remaining prerequisite for a tapering of asset purchases.

The dollar edged higher against six rivals to 92.744, up from a low of 92.395 on Tuesday.

Still, the Fed last week appeared in no rush to pull back from its massive stimulus, with the continuing dovish tone contributing to a strong monthly performance by the US’s three main indices, even as US consumer confidence fell to a six-month low in August as soaring Covid-19 infections and rising inflation dampened the economic outlook.

Yields on benchmark 10-year Treasury notes gained to 1.32% compared with the US close of 1.3%, edging into the upper end of the range in which they have traded for the past two months.

Reuters