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POLITICAL ECONOMY
China data and US banks propel equities higher
by Staff Writers
New York (AFP) Oct 14, 2016


China producer prices in first rise for over 4 years
Beijing (AFP) Oct 14, 2016 - The price of goods at the factory gate rose in China for the first time in more than four years in September, officials said Friday, in a positive sign for demand in the world's second-largest economy.

The producer price index (PPI) rose 0.1 percent year-on-year in the month, according to the National Bureau of Statistics (NBS), adding it "ended 54 consecutive months of year-on-year falls".

Chinese firms have for years been battered by falling prices for their goods in the face of chronic overcapacity and weak demand, putting a damper on growth in a key driver of the world economy.

Protracted drops in PPI bode ill for industrial prospects and economic growth, as they put off customers -- who seek to delay purchases in anticipation of cheaper deals in future -- starving companies of business and funds.

September's PPI rise "should ease any lingering concerns about deflation," Julian Evans-Pritchard, an analyst with research firm Capital Economics, said in a note.

ANZ economists David Qu and Raymond Yeung said that the turnaround in PPI made further monetary policy loosening unlikely.

"The end of deflation basically dismisses the chance of further required reserve ratio and interest rate cuts," they said in a report.

NBS analyst Yu Qiumei attributed the PPI increase to strengthening international commodity prices and Beijing's efforts to address industrial overcapacity.

Prices of key imported commodities including iron ore, crude oil, coal and steel performed more strongly in the third quarter compared with the first half of the year, official data showed.

Beijing this year vowed to eliminate 100 million to 150 million tonnes of steel capacity by 2020 and cut 500 million tonnes of coal mining capacity within three to five years, as it seeks to restructure lumbering state-owned enterprises.

"The demand-supply imbalance was eased and inventory and sales in key industries showed signs of improvement," Yu said in a statement on the NBS website.

- Growth slowdown -

September's PPI increase was the first rise since January 2012 and came in ahead of expectations of a 0.3 percent fall in a survey of economists by Bloomberg News.

The consumer price index, a key gauge of retail inflation, rose 1.9 percent, also above expectations of 1.6 percent.

Recent indicators have painted a mixed picture of China's economic health.

An official measure of manufacturing activity maintained its strongest level in nearly two years in September while auto sales grew at their fastest rate in three years in the world's biggest car market.

But exports sank 10.0 percent year-on-year, suggesting the Asian giant is yet to see the bottom of its years-long growth slowdown.

Imports returned to negative territory last month after a brief rise in August, with iron ore and copper volumes dropping, leading analysts to warn that the recent recovery in manufacturing activity could be short-lived.

Goldman Sachs analysts said this year's progressive improvement in PPI was primarily to depreciation of China's yuan currency and oil prices recovering.

"We do not think the recent higher CPI and PPI readings should trigger a sharp turn in monetary policy or overall policy stance, as overall inflation remains mild, and the recently higher CPI and PPI readings are partly driven by the low base last year," they said in a note.

China expanded last year at its slowest rate in a quarter of a century as Beijing strives to effect a difficult transition from reliance on exports and fixed-asset investment to an economy driven by consumers.

The benchmark Shanghai Composite Index ended marginally up on Friday, rising 0.08 percent, or 2.46 points, to 3,063.81.

Global stocks rose Friday on upbeat Chinese data and solid earnings by US banks, with London's benchmark index headed back towards its record-high level.

Gains were strongest among stock markets in the eurozone, while a rally on Wall Street lost steam as the dollar gained on other major currencies.

"This is really the warmup to earnings season," said Art Hogan, chief market strategist at Wunderlich Securities in New York. "This is a market that is taking a wait and see approach to see what the earnings season shows."

Bourses were also higher in Asia, including in Thailand, where investors engaged in bargain-buying after Bangkok stocks plummeted on the death of King Bhumibol Adulyadej.

A rise in China's producer price index last month after falling for 54 consecutive months provided some much-needed hope for the Chinese economy a day after market-sapping trade figures.

Chinese consumer prices also climbed more than expected, further boosting sentiment.

Meanwhile a trio of leading US banks beat analyst forecasts for third quarter earnings despite the tough low interest rate environment.

The three -- Wells Fargo, JPMorgan Chase and Citigroup -- all saw net profits fall as low rates pared lending margins, but they beat forecasts from analysts.

Paris shares rose 1.5 percent while Frankfurt gained 1.6 percent and London 0.5 percent.

London's FTSE 100 index this week hit an intra-day high of 7,129.83 points, fuelled by a plunging pound in the wake of Britain's vote earlier this year in favour of quitting the European Union.

Wall Street stocks opened solidly higher, but the gains faded as the dollar picked up strength following a report that US retail sales rose 0.6 percent in September.

The S&P 500 finished the day up less than 0.1 percent.

- Thai stocks, baht bounce -

The leading Thai stock index rose more than four percent, in the biggest gain since 2011, according to Bloomberg.

Still, analysts warned uncertainty over the nation's future without the uniting figure of King Bhumibol poses fresh challenges for an economy already battered by a decade of political turmoil.

There is a risk that the king's death could see "political tensions flare up, triggering a slowdown in economic growth," warned Capital Economics.

Shares in Uniqlo parent Fast Retailing jumped 5.0 percent as it predicted net profit would recover in the current fiscal year after diving by more than half in the just-ended business year through August.

Twitter fell 5.1 percent following news that Salesforce chief executive Marc Benioff told the Financial Times it won't bid on Twitter. Salesforce shares jumped 5.2 percent.

Dow member Goldman Sachs gained 1.9 percent after a British court dismissed the Libyan Investment Authority's suit that accused the US bank of duping Libyan officials into bad investments worth $1.2 billion (1.1 billion euros).

- Key figures at 1900 GMT -

New York - DOW: UP 0.2 percent at 18,138.38 (close)

New York - S&P 500: UP less than 0.1 percent at 2,132.98 (close)

New York - Nasdaq: less than 0.1 percent at 5,214.16 (close)

London - FTSE 100: UP 0.5 percent at 7,013.55 points (close)

Frankfurt - DAX 30: UP 1.6 percent at 10,580.38 (close)

Paris - CAC 40: UP 1.5 percent at 4,470.92 (close)

EURO STOXX 50: UP 1.7 percent at 3,025.19 (close)

Tokyo - Nikkei 225: UP 0.5 percent at 16,856.37 (close)

Hong Kong - Hang Seng: UP 0.9 percent at 23,233.31 (close)

Shanghai - Composite: UP 0.1 percent at 3,063.81 (close)

Euro/dollar: DOWN at $1.0974 from $1.1056 Thursday

Dollar/yen: UP at 104.16 yen from 103.66 yen

Pound/dollar: DOWN at $1.2193 from $1.2253

Euro/pound: DOWN at 90.01 pence from 90.25 pence

Oil - West Texas Intermediate: DOWN 9 cents at $50.35 a barrel

Oil - Brent North Sea: DOWN 8 cents at $51.95 a barrel

burs-rl-jmb/pmh

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