European shares surge following positive Chinese trade data

European shares rose to within striking distance of their highest levels in more than a year on Friday, and the dollar was buoyant as investors cheered upbeat Chinese trade data and hopes of business-friendly tax cuts in the United States.

President Donald Trump said on Thursday that in coming weeks he would announce something "phenomenal" in terms of tax, although he offered no further details.

Renewed speculation that Trump’s economic policies will help boost economic growth and inflation pushed US treasury yields higher and lifted the dollar. Meanwhile, strong Chinese trade numbers of Friday added to a sense that inflationary pressures could be stirring.

Evidence of Chinese growth lifted shares of commodity-related sectors, in particular blue chip mining, across Europe. This helped regional indexes inch higher back towards last month's peaks.

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Europe’s Stoxx 600 rose 0.2 per cent and was poised to end the week about 1 per cent higher. In Dublin, the Iseq index was almost 0.3 per cent ahead in early trading.

Healthy corporate results and the continued uptick in regional dealmaking, which is seeing its strongest start to the year in more than a decade, also helped underpin valuations.

Bullish sentiment

“President Trump promising tax reform in 2-3 weeks (potentially at the Feb 28 address to Congress) has added to risk bullish sentiment,” said Morgan Stanley strategists in a note to clients. Wall Street’s three main indexes notched record highs overnight.

Broad bullish sentiment was evident in investment flows as well. In the past week investors have pumped $13 billion into bonds, $6 billion into equities and even $2 billion into gold, according to the latest data from Bank of America Merrill Lynch and fund tracker EPFR.

On the political front, Trump seemed to change tack and said he would honour the long-standing "one China" policy during a phone call with China's leader. This is a major diplomatic boost for Beijing, which brooks no criticism of its claim to neighbouring Taiwan.

The focus now shifts to a meeting later on Friday between Trump and Japan's prime minister, Shinzo Abe, in which Abe is expected to propose a new cabinet-level framework for US-Japan talks on trade, security and macroeconomic issues, including currencies.

The dollar was up 0.3 per cent against the yen, up more than 1 per cent for the week. The dollar index, which tracks the greenback against a basket of six major currencies, added 0.2 per cent on the day to 100.8, on track to gain 0.8 per cent for the week.