Via Financial Times

Global stocks were boosted on Thursday after China’s central bank moved to improve economic growth by pumping $115bn into the country’s financial system.

Chinese stocks led the rally, with the CSI 300 of Shanghai- and Shenzhen-listed companies rising 1.4 per cent on the first trading day of 2020 to hit their highest level since February 2018. European markets opened higher with the Stoxx 600 adding 0.7 per cent, while futures trade pointed to gains when Wall Street opens later in the day.

The People’s Bank of China on Wednesday cut the reserve requirement ratio for commercial lenders across the board by 50 basis points, to release around Rmb800bn ($114.9bn) of fresh liquidity into the banking system ahead of Chinese new year later in January. Meanwhile, a survey showed continued growth in China’s manufacturing sector.

Analysts said the PBoC’s move, which had been expected, would reduce banks’ funding costs and free up credit for private companies and small businesses.

European stock market gains were driven by rallies in London’s FTSE 100, Frankfurt’s Dax 40 and Paris’s Cac 40, which were up 0.7 per cent, 0.3 per cent and 0.9 per cent respectively. The yield, which moves inversely to the price, on the German 10-year Bund rose 3 points as investors exited the debt. S&P 500 futures were up 0.4 per cent.

Chinese stocks, which in 2019 saw their best performance in five years, were buoyed after US President Donald Trump this week said that he will sign a “phase one” deal alongside Chinese officials in Washington on January 15. That could signal a truce in the long-running trade conflict.

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“I expect near-term positive momentum for Chinese equities as investors react positively to two catalysts this week: the RRR cuts and the signing of the phase one deal,” said David Chao, Asia-Pacific global market strategist at fund manager Invesco. 

Data released on Thursday indicated continued momentum in China’s manufacturing sector. The Caixin-Markit China manufacturing PMI survey for December came in at 51.5, firmly above the 50-point level that indicates growth in the sector. The reading was slightly down from 51.8 in November, the highest in three years.

“The [prospect of a] phase one trade deal between China and the US has sent out positive signals,” said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group. “There is room for a recovery in business confidence, which should be able to help stabilise the economy.”

China’s manufacturers have been badly hit by the US-China trade war, but the Caixin-Markit PMI index highlighted an improvement in business confidence.

China’s official manufacturing PMI, which surveys larger, state-owned companies, held steady at 50.2 in December, according to the National Bureau of Statistics. 

Elsewhere in Asian trading on Thursday, Hong Kong’s Hang Seng index gained 1 per cent to reach its highest since the end of July, just hours after anti-government protests ended in violence.