World stock markets held near recent record highs on Monday as upbeat Chinese economic data eased concerns about a slowdown in the world's No.2 economy, although falling mainland house prices and rising COVID cases across Europe tempered the optimism.
Annual growth in Chinese retail sales and industrial output beat forecasts, with the bounce in consumption a positive given pandemic restrictions.
But in a negative sign for the stressed housing market, China's new home prices fell 0.2% month-on-month in October, the biggest decline since February 2015. And economists at CBA said there was a chance the Chinese central bank would cut bank reserve requirements (RRR) this week to support activity.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4%, while MSCI's world stock index hovered near last week's record peaks.
Australia's dollar also took comfort from the Chinese data, rallying almost half a percent.
Europe's broad STOXX 600 index briefly touched a fresh record high and U.S. equity futures pointed to a firm open for Wall Street .
"The big growth worry right now is China," said Timothy Graf, head of macro strategy for EMEA at State Street in London.
"And I guess today, it's good to see that the domestic side is perhaps not quite as vulnerable as was perhaps previously feared."
Japan's Nikkei closed almost 0.6% higher. Data showing economic activity shrank by more than expected in the third quarter boosted expectations for aggressive fiscal stimulus.
Yet there was also a note of caution in world markets, with latest COVID headlines tempering sentiment in Europe and supporting safe-haven bond markets.
Austria slapped a lockdown on people unvaccinated against the coronavirus on Monday as infections rose across Europe, with Germany considering tighter curbs and Britain expanding its booster program to younger adults.
Europe has again become the epicenter of the pandemic, prompting some countries to consider re-imposing restrictions in the run-up to Christmas and stirring debate over whether vaccines alone are enough to tame COVID-19.
Brent crude futures tumbled 1.6% to $80.85 a barrel on expectations of increasing supply, with higher energy costs and rising COVID-19 cases also seen weighing on demand.
U.S. West Texas Intermediate crude lost 1.4% to $79.65.
Elsewhere, the United Nations climate conference in Scotland managed to hammer out a deal on emissions, but only by watering down a commitment to phase out coal.
The agreement hurt miners' shares. China Shenhua Energy and Yanzhou Coal fell 1% and 2.4% respectively in Hong Kong; UK-listed miners Glencore, Rio Tinto and Anglo American tumbled 1.4-2.4%.
Royal Dutch Shell was also in focus after announcing it would scrap its dual share structure and move its head office to Britain from the Netherlands.
Central Bank Watch
Major central banks' response to the emergence of inflation pressures also remained in the market spotlight.
Persistent supply chain bottlenecks and soaring energy costs are slowing euro zone growth and will keep inflation high for even longer than had been thought, European Central Bank chief Christine Lagarde said on Monday.
After bond yields rose sharply last week following strong U.S. inflation data, a calmer tone resurfaced in major bond markets.
Germany's 10-year Bund yield was a touch lower at -0.26% , and benchmark 10-year U.S. Treasury yields fell 3 basis points to 1.55% after jumping 11 bps last week as markets positioned for early monetary tightening by the Federal Reserve.
"On the inflation side, the term transitory isn't appropriate for the conditions we're seeing," said Seema Shah, chief strategist at Principal Global Investors in London.
"We see inflation staying higher for longer. One reason that (bond) markets sold off last week was that there were signs that the rise in price pressures was broadening out."
Higher U.S. yields have combined with general risk aversion to benefit the dollar, which just boasted its best week in almost three months. Against a basket of currencies, the dollar was a touch lower at 95.058 but near its highest since July 2020.
It held at 113.83 yen, while the euro steadied at around $1.1445 but remained vulnerable.
Mark Haefele, UBS Global Wealth Management's CIO, said he saw further dollar strength against the yen, euro and Swiss franc and forecast the euro to fall to $1.10 by end-2022.
"We advise clients to position for a stronger dollar, with currency trades being one means of adding yield to portfolios," he said in a note.
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