By Tom Wilson
LONDON (Reuters) - European shares rose on Monday as industrial activity in China gained strength, another sign of recovery from the coronavirus pandemic that added to hopes the global economy would also return to health.
The broader Euro STOXX 600 (STOXX) rose 0.6%, with London's FTSE (FTSE) buoyed 1% and European oil and gas shares (SXEP) climbing 2% on rising oil prices.
Shares in BP (L:BP) and Royal Dutch Shell (L:RDSa) rose 3.4% and 2.7% respectively after Saudi Aramco (SE:2222) raised optimism about a growth in Asian demand and Iraq pledged to further cut supply. [O/R]
Deflation at China's factories eased in July, data showed, driven by a rise in global energy prices and as industrial activity climbed back towards pre-coronavirus levels.
Industrial output in the world's second-biggest economy is steadily returning to levels seen before the pandemic paralysed huge swathes of the economy, driven by pent-up demand, government stimulus and surprisingly resilient exports.
That bodes well for the global recovery from the coronavirus pandemic, market players said.
"China is so much in advance in this process of lockdowns and exiting lockdown, that any good signs for the Chinese economy is essential (for the world economy)," said Florian Ielpo, head of macroeconomic research at Unigestion.
The MSCI world equity index (MIWD00000PUS), which tracks shares in 49 countries, gained 0.1%. Wall Street futures gauges (ESc1) pointed to a positive start.
But advances were checked by tension between the United States and China. Uncertainty about a deal on a U.S. stimulus package also weighed on markets
U.S. President Donald Trump signed executive orders banning Chinese social media platforms WeChat - owned by Chinese tech giant Tencent (HK:0700) - and TikTok starting next month, and imposed sanctions on 11 Hong Kong and Chinese officials.
U.S. regulators also recommended that overseas companies listed on American exchanges be subject to U.S. public audit reviews from 2022.
The U.S.-China tensions has stoked fears about an adverse impact on trade talks. Any friction here could complicate the global recovery from the coronavirus pandemic, investors said.
Underscoring concerns, European tech shares (SX8P) lost 0.8% on the tension between Washington and Beijing, the only sector to fall in early trade.
Earlier, Asian shares outside Japan (MIAPJ0000PUS) seesawed in holiday-thinned trade, staying below a six-and-a-half-month peak touched last week. They were last up 0.1%.
WAITING FOR WASHINGTON
Causing further uncertainty for investors are ongoing talks in Washington over a U.S. fiscal stimulus package that have hobbled the U.S. dollar.
House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin on Sunday said they were open to restarting aid talks.
Trump has sought to take matters into his own hands, signing executive orders and memorandums aimed at unemployment benefits, evictions, student loans and payroll taxes.
With investors worried that the U.S. recovery may lag behind those in other major economies, the dollar's two-year supremacy has slipped.
Against a basket of currencies, the dollar was a fraction firmer at 93.339 (=USD) and still just above a two-year trough.
"The fresh stimulus provided by President Trump through executive orders is better than none at all and provides a stop gap solution," wrote analysts at MUFG in London.