June 2, 2014 / 1:15 PM / 3 years ago

GLOBAL MARKETS-China PMI lifts shares, commodities, euro soft ahead of ECB

5 Min Read

* Wall St record, upbeat China data lift Europe, Asia shares
    * Expected ECB stimulus later in week keeps euro pressured
    * Rising risk appetite extends gold's poor run
    * Wall St set to inch ahead as world shares drift higher

    By Marc Jones
    LONDON, June 2 (Reuters) - Reassuring Chinese factory data
and another record high for Wall Street lifted world stocks and
commodities on Monday, as markets waited to see how far the
European Central Bank will go with policy easing plans this
week.    
    The euro fell against the dollar, as subdued
inflation readings in Germany and slower-than-expected
manufacturing growth in the euro zone piled pressure on the ECB
to act aggressively when it meets on Thursday.
    Shares and commodities rose globally however as a rebound in
Chinese manufacturing data helped soothe jitters about its
economy following a wobble in the early months of this year.
    Germany's DAX stock index closed in on 10,000
points for the first time, while gains elsewhere in Europe and a
2-percent jump for Tokyo's Nikkei left MSCI's world
index edging to its own all-time high.
    Futures prices pointed to the momentum just about holding
for the start of U.S. trading, where the S&P 500 and Dow
Jones Industrial both begin what will be a busy week.
 
    U.S. jobs data comes on Friday, but the main event will be
the ECB's meeting on Thursday after weeks of frenzied
speculation about rate cuts and other policy measures.
 
    Like many, Societe Generale expects the central bank to cut
rates and start charging banks that deposit cash with it, but
unlike most, it also expects a far more aggressive 300 billion
euro ($400 billion) Asset Backed Securities (ABS) purchase
programme to be announced.
    "We are expecting quite a slew of measures from the ECB,"
Societe Generale FX strategist Alvin Tan said.
    "In our view all the rate cuts are priced in, even a
negative deposit rate, but an asset purchase programme is
probably not, so that would weaken the euro," he said.
    The euro fell 0.2 percent to hit $1.3595 in the
European session, not far from a three-month low of $1.3586
touched on Thursday. It also fell against sterling 
to 81.15 pence, with diverging monetary policy outlooks between
the ECB and the Bank of England underpinning the pound.
  
    
    RATE EXPECTATIONS
    Though the U.S. Federal Reserve, Bank of England and Bank of
Japan have long been using near-zero interest rates, the ECB is
expected to go a step further and bring in a "negative deposit
rate" by which it would charge banks who hoard spare cash.
    Extra pressure for the ECB to act aggressively came from
German annual inflation data, which showed a slowdown to its
weakest rate in nearly four years in May. 
    European bonds continued to perform strongly and
in Asia, the positive sentiment spilling over from China helped
the Nikkei and saw Australian shares add 0.3 percent. 
    MSCI's broadest index of Asia-Pacific shares outside Japan
 was little changed. Greater China markets were
closed on Monday for a holiday.
    The dollar was broadly stronger. It edged up 0.2 percent to
102.12 yen thanks in part to slightly higher U.S.
Treasury yields and as it rode momentum from Friday's record
close for the S&P 500. 
    "With market participants unwilling to be brave enough to
take against-consensus euro long positions ahead of the
(ECB)meeting, and the potential for an upside surprise in U.S.
data, we expect euro/dollar to remain under pressure," ING
currency strategist Petr Krpata said.
    
    FINE CHINA
    The robust China PMI reading also lifted base metals by
lifting demand prospects for the world's second biggest economy,
and supported emerging market currencies and stocks.
    China's factory activity expanded at the fastest pace in
five months in May, official data showed on Sunday, reinforcing
views that its economy is regaining traction following support
from Beijing. 
    Three-month copper on the London Metal Exchange 
climbed 1.2 percent to $6,925 a tonne. The metal gained 3.1
percent in May, its biggest monthly advance since December.
 
    With risk appetite strong, safe-haven gold slid for a fifth
straight session. Spot gold was at $1,246 an ounce, not
far from the four-month low of $1,241.99 hit on Friday. 
Oil also slipped as the stronger dollar weighed. 
    "It's certainly a good sign to see the PMI starting to pick
up, which suggests that the Chinese fine-tuning of policies is
starting to gain a bit of traction which is a positive for
industrial commodities," National Australia Bank analyst James
Glenn said.

 (Additional reporting by Shinichi Saoshiro in Tokyo and Anirban
Nag in London; Editing by Louise Ireland)

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