Global stocks near 5-year highs

Friday 09:45 BST. A worldwide stock barometer is flirting with five-year highs as building optimism over the global economy, coupled with reassurances that central banks are in no hurry to tighten monetary policy, boost demand for growth-focused assets.
However, dealers are wary of some potentially volatile trading later in the session when the US non-farm payrolls report will offer a critical health check for the country's labour market and thus whether the Federal Reserve can proceed with a tapering of its asset purchase programme, likely to start in September.
The FTSE All-World equity index is up 0.3 per cent to 248.6, less than two points shy of its best closing level since June 2008. Momentum is being provided on Friday by the FTSE Eurofirst 300 seeing a rise of 0.4 per cent and Tokyo enjoying its biggest gain in five weeks.
Asian and European-based investors are energised by Wall Street's move to a fresh peak, the S&P 500 closing above 1,700 for the first time. Index futures suggest the benchmark will ease one point to 1,706 when the starting bell rings at 1430 BST.
The latest surge for Wall Street, and indeed other developed markets, has come after a batch of well-received manufacturing surveys.
Official factory activity in China during July was slightly better than expected and this was followed by improving conditions in the eurozone and a beefy report from the UK.
Finally, the US Institute for Supply Management's manufacturing index jumped from 50.9 to 55.4 last month, way ahead of expectations and the highest reading for two years.
The employment component of the ISM report rose - and as separate figures showed a drop in initial US jobless claims last week, the scene is set for a robust non-farm payrolls report on Friday, reckon analysts.
"With the market expecting a decent rise in payrolls of around 200,000 - the ISM employment numbers help support those forecasts - the case for September tapering is looking stronger on the back of this report," said James Knightley, economist at ING.
There was a time in past months when the thought of the Fed reining back its largesse in response to evidence of improving economic conditions would have caused market conniptions; a scenario where good economic news was deemed bad for equities.
But there is a growing belief that the stock market has got over this "taper tantrum", particularly as the Fed has been at pains to point out that interest rates will remain at rock bottom levels for the foreseeable future, a strategy reciprocated in the UK, eurozone and Japan.
Still, the better economic data are having its traditionally negative impact on fixed income assets. Prices of US benchmark bonds are falling, pushing 10-year yields up 2 basis points to 2.73 per cent, just a couple of basis points shy of their highest in two years.
With equivalent maturity German Bund yields of 1.70 per cent, the spread in favour of Treasuries is now more than 100 basis points, extra income that has been helping support the dollar.
On Friday, however, the buck is giving back some of the previous session's gains versus the euro, with the single currency adding 11 pips to $1.3217. The dollar index is barely changed at 82.34.
A notable victim of the dollar's economic data-induced surge on Thursday was the Japanese yen, which after strengthening to Y97.56 midweek is now back above Y99.50. The softening yen has bolstered the export-heavy Japanese stock market, with the Nikkei 225 surging 3.3 per cent.
Another currency under the cosh is the Australian dollar, which has traded below $0.89 for the first time since August 2010, ahead of next week's Reserve Bank of Australia meeting when it is widely believed borrowing costs will be cut to support the economy.
Canberra is concerned that resource demand from the likes of China is waning, and indeed some industrial commodities have been having a tough time. The price of copper this week came within a few bucks of breaking below the $3 a pound level but has rallied on the manufacturing PMI reports.
In the current session the red metal is up another 0.7 per cent to $3.19. Brent crude is gaining 12 cents to $109.66.
Gold is not such a fan of improved growth expectations because they are seen reducing the longevity of central bank liquidity injections. The bullion is down $17 to $1,290 an ounce.
Additional reporting by Patrick McGee in Hong Kong.

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