Global stocks rally as China manufacturing rebounds
World stocks have rebounded after China's manufacturing activity expanded at the fastest pace in more than a decade, while stronger-than-expected inflation numbers across the euro zone battered government bonds.
Inflation data from German regions on Wednesday, a day after February numbers showed price pressures surged more than expected across France and Spain, stoked fears that the European Central Bank would need to raise rates further.
Germany's two-year government bond yield, highly sensitive to changes in interest rate expectations, rose to its highest since October 2008 at 3.20 per cent, and was last up eight basis points (bps) on the day. Bond yields rise as prices fall.
"The surprises in January inflation releases have challenged hopes for a smooth return to target inflation," said Bruno Schneller, a managing director at INVICO Asset Management.
Sticky inflation might compel central banks to raise rates further in order to prevent further economic damage, he said.
"Consequently, the risk of policy-driven recessions could rise," he added.
Two-year Treasury yields, a guide to short-term US rate expectations, were close to four-month highs, but at 4.85 per cent, are below a November peak around 4.88 per cent.
The next flush of economic indicators are likely to be crucial as markets gauge whether future rate hikes are sufficiently priced in now.
Meanwhile, stock markets looked beyond Europe, cheered by numbers from China's factory sector, which grew in February at the fastest pace in more than a decade (an outlier in Asia, where manufacturing growth stalled elsewhere).
China's official manufacturing purchasing managers' index (PMI) stood at 52.6 last month against 50.1 in January and was well ahead of an analyst forecast for 50.5, giving investors hope that China's recovery can offset a global slowdown.
MSCI's broadest index of Asia-Pacific shares outside Japan jumped 2.2 per cent to leave behind a two-month low.
The index provider's broader world stock offering last rose 0.4 per cent. European stocks followed suit. The continent-wide STOXX 600 rose 0.1 per cent, kicking off the month on steady ground following a solid start to the year.
A flurry of earnings had Nivea maker Beiersdorf forecasting slower sales growth after a bumper 2022, while logistics group Kuehne und Nagel reported a 43 per cent drop in Q4 operating profit and Just Eat Takeaway.com swung to a small 2022 core profit.
US stocks were expected to reverse a downward week with S&P futures up 0.2 per cent.
"The China February PMI data this time has assumed even greater importance due to the usual lack of January/February hard data until later this month," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
In currency markets, the dollar's February gains seem to have run out of steam and European and Asia-Pacific currencies advanced on the strength of the Chinese data.
The pound and euro were last up 0.4 per cent and 0.7 per cent against the dollar respectively.
Brent crude futures were last down 0.5 per cent at $US83.06 a barrel.