While you were sleeping: Investors bet on China

Friday 13th April 2012

Wall Street advanced, as did equities in Europe, as investors bet that China is set to release better-than-predicted economic growth data.

China's first quarter gross domestic product is expected to show the world's No. 2 economy grew 8.4 percent from a year earlier, after expanding 8.9 percent in the previous quarter.

In afternoon trading in New York, the Dow Jones Industrial Average climbed 1.34 percent, the Standard & Poor's 500 Index gained 1.23 percent and the Nasdaq Composite Index rose 1.15 percent.

Optimism that China, a large user of raw materials, is doing better than expected lifted commodity prices including those of copper, and helped stocks of Rio Tinto, BHP Billiton, US Steel and Freeport-McMoRan Copper & Gold.

In fact, the outlook for copper is a good one. The metal will average US$9,000 a ton in the third quarter, 9.5 percent more than now, according to the median estimate of the top five analysts in Bloomberg Rankings in the past eight quarters.

So far, there's optimism too at the start of American first-quarter earnings season.

Hewlett-Packard jumped more than 6 percent after researcher Gartner said the global personal-computer industry unexpectedly expanded in the first quarter and that HP is gaining market share both at home and abroad.

Google is set to release results later today.

US economic reports today showed a mixed picture. Unemployment claims rose 13,000 in the week ended April 7 to 380,000, which was higher than expected. Economists cautioned that the data are typically volatile around this time of the year.

"The increase caught our attention, but the next few weeks will be very telling. If claims continue to tick higher then it will be a signal that the sword over the jobs market is real. For now we take this report with a grain of salt," Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania, told Reuters

On the bright side, consumer confidence held near a four-year high and the trade gap shrank a bigger-than-expected 12.4 percent to US$46 billion in February

In Europe, the Stoxx 600 Index ended the session with a 1.2 percent gain.

Helping the mood was an increasing appeal of Italian and Spanish bonds. The yield on Italy's 10-year bonds dropped 14 basis points to 5.40 percent, while the yield on Spain's 10-year bonds fell 7 basis points to 5.81 percent.

"The easing bond yields are a signal to investors here that things aren't quite that bad in Europe," Brian Gendreau, market strategist with Cetera Financial Group, told Reuters.

The central bank of the world's No. 3 economy is ready to help, too. Bank of Japan governor Masaaki Shirakawa pledged to continue to add monetary stimulus.

(BusinessDesk)

BusinessDesk.co.nz

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