Asia stocks rally as China data buoys mood; dollar stays strong

Asian markets surged sharply on Friday, extending a worldwide share rally, as better-than-expected Chinese growth data contributed to optimism that the world’s major central banks’ tightening efforts were nearing a conclusion.

The dollar remained near a six-month high against major rivals, supported by strong US economic statistics, while the euro fell as the European Central Bank said that Thursday’s rate hike was likely to be the last this cycle.

Crude oil reached a new 10-month high.

MSCI’s broadest index of Asia-Pacific shares rallied 0.84 per cent.

Japan’s Nikkei jumped 1.33 per cent to a two-month high.

Hong Kong’s Hang Seng added 1.2 per cent, and mainland Chinese blue chips rose 0.2 per cent, flipping from early small losses.

Australia’s stock benchmark surged 1.75 per cent.

US S&P 500 futures pointed to a 0.17 per cent rise after the cash index rallied 0.84 per cent on Thursday.

Chinese retail sales and industrial output for August easily above predictions, offering additional tailwinds from the central bank’s overnight move to reduce banks’ reserve ratio requirements for the second time this year.

However, statistics earlier in the day showed the greatest decline in new house prices in ten months, highlighting the property sector’s troubles after Moody’s reduced the sector’s outlook to negative on Thursday.

“It’s certainly not a definitive turning point, but perhaps we’re seeing green shoots in China’s economy,” said Kyle Rodda, senior market analyst at brokerage firm Capital.com, calling the retail sales figures “particularly heartening.”

“It’s a nice little shot in the arm to end the week” for stock markets, but, “I think investors will be searching for more in terms of support from the central government, and ultimately, more fiscal support is what’s required to boost demand,” he said.

The overall improving economic outlook bolstered the Chinese yuan, which gained about 0.3 per cent to 7.2709 per dollar in offshore markets.

Australia’s dollar, which often trades as a proxy for the country’s top trading partner, rose 0.3 per cent to $0.6460.

However, a gauge of the US dollar against six of its biggest developed-market peers stuck close to the six-month peak it reached overnight, buoyed primarily by the euro’s steep overnight slide.

The so-called US dollar index edged down 0.08 per cent to 105.33, after hitting the highest since early March at 105.43 on Thursday.

The euro was flat at $1.0643, languishing near the overnight low of $1.0632, the lowest level since March 20.

The European Central Bank (ECB) hiked its key interest rate to a record 4 per cent on Thursday but hinted that this latest increase would likely be its last.

Meanwhile, US data showed producer prices increased by the most in more than a year in August and retail sales also rose more than expected. But both of those figures were swelled by higher gasoline prices.

As a result, traders stuck to bets for the Federal Reserve to skip a rate hike next week, in what might be the end of the tightening cycle.

“A dovish ECB rate hike contrasted against a US economy ticking all the boxes to retain its Goldilocks status into year-end,” said Tony Sycamore, a market analyst at IG.

The dollar index is on track for a ninth straight weekly advance, the longest run in nine years.

Whether it can extend that to a tenth week depends on Fed Chair Jerome Powell’s tone after the central bank policy decision on 20 September, Sycamore said.

In energy markets, crude oil extended its rise in Asia trading, touching fresh highs since November.

Brent crude rose 0.5 per cent to $94.16, while the US West Texas Intermediate crude (WTI) was up 0.6 per cent at $90.74.