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Global Stocks Launch Higher After Chinese Easing Move

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01/02/2020 | 08:59am EDT

By Caitlin Ostroff

Global stock markets got off to a strong start on the first trading day of the year after China's central bank announced a fresh dose of monetary policy easing.

U.S. futures were higher and stock markets in Asia and Europe were broadly up Thursday. Hong Kong's benchmark Hang Seng Index rose 1.3% and China's Shanghai Composite gained 1.2%.

The moves came after the People's Bank of China on New Year's Day lowered the amount of reserves banks need to keep on hold at the central bank, essentially freeing up cash for lending into the world's second-largest economy.

"Even if there is bad news you see that central banks have put quite a solid foundation under the market," said Bas van Geffen, a quantitative analyst at Rabobank. "Whatever stimulus the PBOC does in China means the economy will do better, which is good for European exporting firms."

Futures tied to the S&P 500 were up 0.6%. Stocks in Europe were broadly higher with the Stoxx Europe 600 and the U.K.'s FTSE 100 up 1% and the French CAC 40 rising 1.3%.

The PBOC announcement reinforces expectations that Beijing will follow through on promises to boost its economic growth in 2020.

Nathan Chow, senior economist at DBS Bank in Hong Kong said the ratio cuts would reduce funding pressure on banks and property companies, seen as weak spots in the financial system. He expects two more such cuts later this year.

Figures on manufacturing activity published Thursday meanwhile showed China's factories slowed slightly in December but remained in expansionary territory for the fifth straight month. European manufacturing data came in better than expected but continued to show contraction in the industrial part of the economy.

Markets were further buoyed by renewed hopes of lessening U.S.-China trade tensions. On Tuesday, after European and Asian markets closed ahead of the new year, President Trump said he would sign a phase-one trade deal with China on Jan. 15.

"We've also had some pretty good news over the past few days with the trade deal," Mr. van Geffen said. "There appears to be some progress there."

Gains in European stocks were led by the banking and basic resources sectors, both of which stand to benefit from a pickup in Chinese growth.

European banks were also aided by a continued rise in government bond yields and a steepening yield curve. Germany's largest lenders, Commerzbank and Deutsche Bank, were both up more than 5%. Banks pay depositors based on short-term rates, and lend based on long-term rates, so they are more profitable when the difference between the two widens, as it has in recent weeks.

Germany's 10-year bund yielded minus 0.203% on Thursday, according to Tradeweb, up from minus 0.347% a month ago and hovering near its highest level since May 2019. The U.S. 10-year Treasury yield rose as high as 1.946% Thursday, its highest since Dec. 24.

Aerospace giant Airbus rose 2.9% after Reuters reported it beat a yearly production target.

--Joanne Chiu in Hong Kong contributed to this article.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
AIRBUS SE -3.70% 50.27 Real-time Quote.-59.99%
BANK OF CHINA LIMITED 2.41% 2.97 End-of-day quote.1.02%
CAC 40 0.33% 4220.96 Real-time Quote.-26.46%
COMMERZBANK AG 0.97% 3.13 Delayed Quote.-43.81%
DBS GROUP HOLDINGS LTD 1.48% 18.57 End-of-day quote.0.70%
DEUTSCHE BANK AG -1.68% 5.504 Delayed Quote.-19.07%
DJ INDUSTRIAL 1.08% 21157.5 Delayed Quote.-23.20%
HANG SENG 0.65% 23224.48 Real-time Quote.-18.15%
NASDAQ 100 0.90% 7555.914618 Delayed Quote.-10.53%
NASDAQ COMP. 0.63% 7404.169555 Delayed Quote.-14.18%
S&P 500 1.17% 2498.58 Delayed Quote.-20.00%
S&P/CITIC 300 INDEX 0.09% 3270.02 Delayed Quote.-9.47%
S&P/CITIC 50 INDEX 0.12% 3316.15 Delayed Quote.-12.49%
STOXX EUROPE 600 0.42% 312.08 Delayed Quote.-23.03%
STOXX EUROPE 600 NR 0.44% 677.84 Delayed Quote.-22.57%
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