(Reuters) – A pick-up in Chinese factory activity sparked a recovery in world shares on Thursday, though signs of sluggish growth in Europe capped gains and dragged the euro off a two-year peak against the dollar.
With expectations that the U.S. Federal Reserve will maintain its stimulus program unchanged into next year still dominating markets, the fresh round of Purchasing Managers’ Indexes reminded investors that the global economy is slowly gaining momentum.
“Essentially what the PMIs are saying is that there is a pretty modest recovery, but at least it’s going in the right direction,” Chris Scicluna, head of Economic Research at Daiwa Capital Markets said.
Activity in China’s vast factory sector reached a seven-month high this month, according to an HSBC survey, easing concerns about a slowdown in Chinese exports which would point to weakening global demand.
The data helped lift Europe’s broad FTSEurofirst 300 index .FTEU3 0.3 percent by midday, supporting mining and industrial stocks with investors also seeking out auto companies which would benefit from a pick-up in Chinese demand. .EU
U.S. shares were expected to open higher, though factory activity data for the world’s biggest economy due later is likely to show a slight slowdown over a period when the government went into partial shutdown. .N
Overall, MSCI’s world equity index .MIWD00000PUS added 0.1 percent, slightly retracing losses of 0.6 percent on Wednesday, when markets were rocked by fears that a spike in Chinese short-term rates could hurt growth.
DOLLAR DOLDRUMS
The dollar remained broadly weaker as U.S. Treasuries yields traded near their lowest levels in three months after this week’s soft payrolls persuaded many investors the Fed will not pare its bond purchases until 2014.
Dollar selling briefly lifted the euro to $1.3824, its strongest since November 2011, though analysts said there was little conviction behind the move.
“The markets are geared up for euro strength at the moment but people are very reluctant to go headlong into the currency, especially at these levels,” said Simon Smith, chief economist at FXPro.
The euro was last steady at $1.3772 while 10-year German bond yields were flat at 1.77 percent, showing little reaction to the PMI numbers.
Markit’s PMI index for the 17-nation euro area showed business activity eased slightly in October after a pick-up in September, though it confirmed that region’s economic recovery was taking root.
GROWTH VS FED
The positive economic news from massive consumer China and expectations of an extended flow of super-easy dollars generally supported commodity prices, though trading was cautious after sharp moves earlier this week.
Gold was the biggest mover, rising 0.4 percent to $1,336.50 an ounce, nearing a four-week high as the outlook for an unchanged Fed policy heightened concerns about inflation risk.
“Postponement of tapering means higher liquidity in the market, probably higher inflation risks in the longer term,” Commerzbank analyst Eugen Weinberg said. “That’s likely to lead to higher interest in gold.”
Oil was steady after data showing a rise in U.S. crude stocks drove prices down heavily on Wednesday. Brent crude futures were up 22 cents at $108.20 a barrel, while U.S. crude gained 31 cents to $97.17.
