Equity bulls undaunted by global data setbacks

Wednesday 21:00 BST. Investors pushed European stocks and Wall Street higher and the dollar endured a volatile trading session in the wake of disappointing US industrial output figures.

The upbeat sentiment for stocks came in despite of data setbacks across the globe as China recorded its slowest quarter of growth since 2009 while the underwhelming US factory release added to Tuesday's soft US retail sales figures.

"The ability of US markets to brush off both yesterday's disappointing retail sales number and today's weaker-than-expected industrial production and manufacturing survey figures speaks volumes about the state of current investor sentiment," said Joshua Mahony, of IG.

"Either traders want to buy into the bull market regardless of poor data, or they see weak economic indicators as a sign that monetary policy will be accommodative for longer. Most likely both hold true, which no doubt signals a longstanding and, to some extent, unhealthy bull market," he added.

The first ever intraday move above 7,100 for London's FTSE 100 helped the continent-wide FTSE Eurofirst 300 gain 0.6 per cent to a 15-year high, despite its Asia-Pacific peer slipping 0.4 per cent.

In New York, the S&P 500 added 0.5 per cent - leaving it just 11 points off its record close - as investors considered the latest batch of upbeat US corporate earnings, including the likes of Bank of America,Intel and, after the closing bell, Netflix.

Encouraging the purchase of US and European stocks was the meagre income available from sovereign debt.

Bund yields hit record lows of 0.107 per cent, under pressure from the European Central Bank's ongoing €60bn-a-month bond-buying stimulus programme, while 10-year Treasury yields slipped a basis point to 1.89 per cent after US industrial output fell 0.6 per cent in March.

The ECB left its policy unchanged on Wednesday, and in his subsequent press conference president Mario Draghi played down the idea that his quantitative easing strategy was distorting the sovereign debt market by creating a scarcity of bonds.

The euro see-sawed during the session against the dollar before settling 0.2 per cent higher a $1.0672. But a QE-induced weakening trend was still evident as the single currency remained off 0.5 per cent against the Swiss franc and 0.2 per cent against sterling. The dollar index was 0.4 per cent lower.

"The major downside risk the US dollar encountered was that GDP expectations could continue dipping lower, not that the Federal Reserve will swerve away from its repeated commitment to begin raising US interest rates this year," said Jameel Ahmad, of FXTM.

"The first interest rate rise is now largely expected for this September but continued weak data could allow the Federal Reserve to slow down the pace of any future interest rate increases," he added.

A nervous trading session in Asia was dominated by new data showing China's gross domestic product for the first quarter of 2015 grew 7 per cent compared with the same period last year, just meeting the "around 7 per cent" target set by Beijing policy makers.

However, a flurry of data for March released at the same time were weaker than forecasts across the board.

Retail sales grew 10.2 per cent from a year earlier - the slowest since February 2006. Industrial output increased 5.6 per cent, the most sluggish pace since November 2008 and below economists' consensus estimates.

Fixed-asset investment, which includes spending on infrastructure, factory equipment and property construction, also decelerated to a 15-year low of 13.5 per cent in the year to March, down from growth of 13.9 per cent in the first two months.

"The weaker first-quarter GDP growth and much weaker than expected March activity data suggest that growth momentum remains weak, which calls for further policy easing," noted analysts at Nomura.

The disappointing growth numbers highlight the jarring juxtaposition of a slowing economy and a recently soaring stock market.

The Shanghai Composite fell 1.3 per cent on Wednesday but has still climbed more than 27 per cent for the year to date. The Hang Seng in Hong Kong, up 0.2 per cent on the day, has advanced about 17 per cent in that period.

Investors here have also been treating bad economic news as good news, reasoning that it increases the chances of Beijing taking more monetary and fiscal measures to boost growth - a favourite bullish theme of Chinese speculators.

The People's Bank of China has cut interest rates twice since November. Nomura anticipated another cut soon, plus a further lowering in the amount of reserves that banks must hold at the central bank.

"However, given a high base from last year, the year-on-year GDP growth rate is likely to slow to 6.6 per cent in the second quarter, in our view, before rising in [the second half of the year]."

Elsewhere in Asia, markets were mixed. Tokyo's Nikkei 225 fell 0.2 per cent while South Korea's Kospi Composite rose 0.4 per cent.

In Australia, Sydney's S&P/ASX 200 slipped 0.6 per cent, led by consumer discretionary stocks after a monthly survey of consumer sentiment fell below the 2014 average. Australian miners got some relief, however, getting a lift after the price of iron ore climbed 4 per cent overnight.

Industrial commodities generally also shrugged off the data news from China and the US with Brent crude up 3,3 per cent to $60.35 a barrel. In precious metals, gold was up $10 to $1,202 an ounce.

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