European equities buoyed by China’s GDP data

European stocks held near a 14-month high on Tuesday, after better-than-expected Chinese economic data, while sterling rose after wage growth numbers also exceeded forecasts and supported expectations for a further Bank of England rate rise.

Europe’s broad Stoxx 600 index rose 0.3%, just shy of its highest level since February 2022 reached a day earlier. It was kept in positive territory by European banking stocks that gained 1.4% ahead of results from US majors Goldman Sachs and Bank of America later in the day.

A combination of cheap valuations, signs that China’s reopening is boosting European firms, a weak dollar and softening inflation have supported European shares in recent months.

S&P 500 futures rose 0.3%.

China’s economy grew 4.5% year on year in the first quarter, eclipsing the expectations of most economists, data released on Tuesday shows.

That helped strengthen the yuan and the China-exposed Australian and New Zealand currencies, along with Chinese blue chip stocks, though the patchiness of the recovery meant gains were not universal. Hong Kong and Australian share benchmarks both fell.

Separate data on Chinese activity, also released on Tuesday, shows factory output accelerated but missing expectations, while fixed asset investment growth unexpectedly slowed.

“The headline number is a positive surprise and overall it's a good set of numbers, albeit uneven, and that is reflected in the markets’ response,” said David Chao, global market strategist for Asia-Pacific at Invesco.

“The market thesis that China is exiting the pandemic and growth will be driven by consumption is still intact. While the recovery is on track, I don’t think economic growth from what we have seen so far is exceeding expectations too much.”

Chao said weaker property investment during the quarter shows the trouble-prone sector hasn’t recovered and could again hold back China’s economic growth this year.

An index of Hong Kong-listed Chinese property firms dipped 1.4%.

Bank of England

In Europe, Britain’s unemployment rate rose unexpectedly in the three months to February but pay growth remained higher than forecast, underscoring concerns about the persistence of inflation in the UK and expectations that the Bank of England will have to continue raising interest rates.

That sent the pound higher and it was 0.52% firmer against the dollar at $1.2442, heading back towards last week’s 10-month high, and slightly stronger versus the euro.

“The data, or at least the earnings part, was a bit stronger than expected, even if the headline numbers were a touch weaker, and it certainly seemed to underpin the market’s perception that the Bank of England will tighten policy again,” said Jane Foley head of FX strategy at Rabobank.

She said that had pushed the pound higher and “it brings home the risks that the Bank of England could go not once but twice”.

The euro gained 0.46% against the dollar to $1.09775, also heading back towards last week’s 14-month high.

European and longer-dated US government bond yields continued to rise. German benchmark 10-year yields reached 2.502%, their highest since 15 March. The 10-year Treasury yield reached 3.608% matching the previous day’s roughly three-week high.

Elsewhere, Australia's central bank considered hiking rates for an 11th time in April before deciding to pause, but was ready to tighten further if inflation and demand failed to cool, minutes of the Reserve Bank of Australia’s April meeting show.

Gold was higher in part because of the softer dollar, with the spot price up 0.4% at $2,003 an ounce.

Reuters