Asia Relieved By China Growth

Asian markets breathed a sigh of relief on Tuesday after China reported its economy had not slowed as far as many had feared, a rare glint of brightness amid gloom over the global outlook.

The IMF tried to snuff out even that by trimming its forecast for 2015 world growth by three tenths of a percent to 3.5 percent, blaming weakness in Japan and Europe.

It also called on advanced economies to maintain stimulative monetary policies to avoid increases in real interest rates as cheaper oil adds to the risk of deflation.

In the end investors seemed thankful that China’s growth of 7.3 percent at least managed to pip forecasts of 7.2 percent, while retail sales and industrial production both ran ahead of predictions in December.

While growth for the year was the slowest since 1990, GDP is now 10 times as large as it was back then.

“It seems the economy is in better shape than expected,” said Darius Kowalczyk, a senior economist at Credit Agricole in Hong Kong. “Growth did slow in annual terms, but year-on-year growth stabilized and momentum also improved towards the end of the quarter.”

The Shanghai Composite Index bounced 2.0 percent and the CSI300 index added 1.4 percent, recovering a chunk of the heavy losses suffered Monday when regulators cracked down on speculative lending.

Markets were higher across much of the region led by a 1.7 percent gain in the Nikkei as the yen slipped and the Bank of Japan began a two-day policy meeting that should see it reaffirm its massive bond-buying campaign.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.2 percent, while South Korea’s main index rose 0.7 percent.


European shares were expected to open firmer for a second day amid intense speculation the European Central Bank will this week extend asset purchases to euro zone sovereign bonds, giving it greater scope to expand its balance sheet.

A Reuters poll of money market traders found the median expectation was for a package worth 600 billion euros, though most also felt that would not be enough to bring inflation up to target.

Indeed, many in the market would prefer an initial target of at least 1 trillion euros or, even better, an open ended commitment to buy as much as necessary to get inflation higher.

Still, the prospect of any action from the ECB was enough to lift Germany’s main index to an historic high while the FTSEurofirst index of 300 leading European shares hit a seven-year peak.

Spain’s 10-year government bond yield hit a new low of 1.47 percent and Italy’s benchmark yield fell as low as 1.62 percent.

The euro was stuck at $1.1577 on Tuesday after hitting an 11-year low last week. The common currency made more progress on the Swiss franc to reach 1.0184 francs, though that follows a 17 percent plunge last week.

The dollar was generally well bid, rising to 118.24 yen and to 92.823 against a basket of currencies.

In commodity markets, oil’s long decline showed no sign of stopping with the latest blow coming as Iraq announced record production of the fuel.

Brent crude was quoted down 6 cents at $48.78 a barrel, while U.S. benchmark crude eased $1.24 to $47.45 a barrel.

Spot gold was steady at $1,275.90 an ounce, not far from a September peak of $1,281.50 reached on Friday.

Source : Reuters