World stocks were underpinned by on Monday by surprisingly strong China manufacturing data as European shares pared losses after the German central bank denied it would stop accepting the bonds of several euro zone countries as collateral.
European shares had eked out modest gains at the start of the second quarter after data on Sunday showed China’s official Purchasing Managers’ Index (PMI), which covers large factories, jumped to an 11-month high of 53.1 in March, beating forecasts.
The pan-European FTSEurofirst 300 index fell, with traders citing media reports that the Bundesbank would not accept bonds of several countries, including Portugal, as collateral.
The Bundesbank said it continued to accept all euro zone sovereign bonds, after which the index pared losses to around 0.2 per cent from around 0.4 per cent.
MSCI’s all-country world equity index was little changed on the day, having inched up 0.1 per cent earlier. Emerging stocks added 0.3 per cent after the Chinese data, though continuing signs the world’s second biggest economy is slowing down kept demand for riskier assets in check.
Equivalent euro zone figures, which had little impact on the market, confirmed earlier estimates that the manufacturing sector shrank for an eighth month, painting a grim outlook for the region as it struggles to generate the growth needed to tackle its debt.
European shares snapped a three-day losing run on Friday, with the pan-European FTSEurofirst 300 index ending the quarter with a gain of 6.8 per cent, its best first-quarter performance since 2006, after euro zone finance ministers agreed to boost rescue funds for the currency bloc.
“The Chinese economic data have reduced the fear of a ‘hard landing’ in China,” said Roger Peeters, strategist at Close Brothers Seydler Research in Frankfurt.
Some cautioned not to read too much into the stronger-than-expected figure from China.
“I don’t think the economy has improved a lot,” Nomura economist Zhang Zhiwei said. “If you take out the seasonality factor, this year’s jump is less than the historical average. From that perspective, it’s not a very strong signal.”
Safe-haven government bond prices retreated, with German Bund futures down 41 ticks at 138.07 but pulling off the day’s lows after the reversal in European equities.
German 10-year yields were four basis points higher at 1.83 per cent while US 10-year yields were half a basis point up at 2.22 per cent.
The relatively upbeat Chinese data hoisted the Australian dollar more than a full US cent to a peak of $1.0470 before it slid back to $1.0384.
The yen, which tends to gain when investors’ appetite for risk sours, was broadly weaker while the euro inched 0.1 per cent lower against the dollar to $1.3344.
“There’s a brighter footing for riskier currencies but I would take the China data with a note of caution as small and medium-sized companies are underperforming and in the bigger picture there are still signs of a moderate slowdown in China,” said Lee Hardman, currency strategist at BTM-UFJ. Equivalent US data will also be released, with investors keen to see whether the recent positive momentum in the world’s largest economy can be sustained. The dollar was last down 0.1 per cent against a basket of currencies at 78.91.
Gold prices edged lower as investors digested the Chinese and European data. Spot gold last traded 0.2 per cent lower at $1,663.40 an ounce after positing a 6.6 per cent rise in the first quarter, although prices fell 1.6 per cent in March, a second straight month in the red.