Stock markets mostly rise on China support; pound rallies

AFP , Tuesday 11 Jul 2023

Major stock markets mostly rose Tuesday as China moved to boost its flagging economy, while the pound hit a 15-month high against the dollar as UK data pointed to more aggressive interest rates hikes from the Bank of England.

Flat consumer prices and a drop in producer prices in China last month raised concerns about the health of the Chinese economy -- and hopes of more government stimulus (STR)

Traders were looking ahead to US inflation data this week, set to provide fresh indication of the Federal Reserve's interest rate plans.

Hong Kong was again one of the best performers after Beijing signalled a crackdown against the tech sector was nearing an end.

China has meanwhile urged banks and other financial institutions to provide easier terms for ailing property developers by renegotiating the terms of their loans, with the aim of ensuring homes under construction were delivered.

And on Tuesday, state-run financial newspapers said more announcements were in the pipeline as well as measures to boost business confidence.

The moves come as the vast property industry in China strains under the weight of enormous debts, with some firms such as Evergrande on the verge of collapse.

The crisis has sent shivers through the world's number-two economy, which has in turn weighed on global growth.

The chairman of Australian mining giant Rio Tinto this week warned of a knock-on effect on the commodities sector.

Beijing has come under immense pressure in recent months to unveil new growth-fuelling policies after a series of below-par indicators showed the post-Covid rebound has run off the tracks.

"China's latest policy support toward the property sector was a bit surprising -- given the low expectations on the property market," said Zhou Hao, of Guotai Junan International Holdings.

"The policies are intended to hedge against the strong headwinds in the market."

However, observers warn there is limited scope in the amount of stimulus officials can provide owing to huge local government debt and leaders' desire to recalibrate the growth model from a vast state investment model.

Pound jumps

Elsewhere Tuesday, London was a rare faller among major stock markets as the pound strengthened, impacting share prices of multinationals earnings in dollars.

The pound reached a 15-month high above $1.29 after UK jobs and wages data indicated that the Bank of England still had some way to go before its stops hiking interest rates aimed at cooling high inflation.

"While there are some signs the tightness in the labour market is starting to ease, wage growth remains uncomfortably high in the context of the Bank of England's efforts to get surging prices under control," noted AJ Bell investment director Russ Mould.

"Borrowers face more pain with the prospect of further rate hikes to come."