Asia stocks rally as China data buoys mood, while dollar stays strong

TOKYO  – Asian stocks rose strongly on Friday, extending a global equity rally, after better-than-expected Chinese economic data added to the good vibes from expectations that tightening campaigns by the world’s biggest central banks were close to over.

The dollar stuck close to a six-month peak from overnight against major peers, buoyed by robust U.S. economic data, while the euro sagged following the European Central Bank’s signal that Thursday’s rate hike was probably the last this cycle.

Crude oil hit a fresh 10-month top.

READ: Oil prices rise to 10 month-high on China reserve ratio cut

MSCI’s broadest index of Asia-Pacific shares rallied 0.79 percent.

Japan’s Nikkei jumped more than 1 percent and touched a two-month high. Hong Kong’s Hang Seng added 1.2 percent, and Australia’s stock benchmark surged 1.75 percent.

U.S. S&P 500 futures pointed to a 0.18 percent rise, after the cash index rallied 0.84 percent on Thursday. Pan-European Stoxx 50 futures indicated 0.7 percent higher.

Mainland Chinese shares were an outlier though, turning down sharply in the afternoon session and last trading 0.7 percent weaker.

Chinese gauges of retail sales and industrial output for August handily topped economists forecasts, providing additional tailwinds from the central bank’s decision overnight to cut banks’ reserve ratio requirements for a second time this year.

READ: China August industrial output, retail sales growth beat expectations

“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.

It was not all blue skies in the Chinese data either, with a separate report showing the biggest drop in new home prices in 10 months – another reminder of the property sector’s struggles, after Moody’s cut the sector’s outlook to negative on Thursday.

Meanwhile, Chinese health authorities said they would deal with an outbreak of monkeypox in the same way as other infectious diseases including COVID-19 and SARS from next week.

The overall improving economic outlook, however, bolstered the Chinese yuan, which gained about 0.2 percent to 7.2731 per dollar in offshore markets.

Australia’s dollar, which often trades as a proxy for the country’s top trading partner, rose 0.39 percent to $0.6466.

However, a gauge of the U.S. 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 U.S. dollar index edged down 0.15 percent to 105.25, after hitting the highest since early March at 105.43 on Thursday.

The euro rose 0.09 percent to $1.06525, as it clawed its way off an overnight trough of $1.0632, the lowest level since March 20.

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

Meanwhile, U.S. 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 U.S. 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 of Fed Chair Jerome Powell’s tone after the central bank policy decision on Sept. 20, Sycamore said.

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

Brent crude futures rose 62 cents, or 0.7 percent, to $94.32, while the U.S. West Texas Intermediate crude (WTI) was up 71 cents, or 0.8 percent, at $90.87.