European and Asian shares edge higher after China survey beats forecasts

European and Asian stocks edged higher on Tuesday, as traders balanced signs of recovery in China’s services sector with fears over the health of the global economy.

The regional Stoxx Europe 600 share index added 0.3 per cent in early dealings, while the FTSE 100 traded broadly flat. In Asia, Hong Kong’s Hang Seng gauge rose 0.4 per cent.

China’s services sector flipped back into expansion territory after contracting for the previous three months, a report on Tuesday showed, with demand improving as Covid-19 restrictions eased. A closely watched private gauge of services activity, provided by Caixin, gave a reading of 54.5 — well above the 50-point threshold that separates expansion from contraction. Economists had expected a figure of 49.7.

Futures contracts tracking Wall Street’s S&P 500 and the Nasdaq 100 added 0.3 and 0.4 per cent, with US markets set to reopen on Tuesday after a holiday.

Last Friday, the S&P had closed higher and government bond markets rallied after a gloomy survey of the US’s factor sector intensified worries about the outlook for the world’s biggest economy. Details of the Federal Reserve’s most recent monetary policy meeting, due to be published on Wednesday, may give further clues about the extent to which the central bank is willing to raise interest rates against a backdrop of slowing growth.

The Fed lifted its benchmark rate by 0.75 percentage points in June, its largest such increase since 1994.

Line chart of Markit/Caixin services PMI showing Chinese services activity accelerates after sharp contraction

A closely watched US jobs report on Friday will also signal the level of heat in the country’s labour market, a criterion which may also influence Fed decision-making.

In recent weeks, traders have scaled back their expectations of how high the Fed will raise borrowing costs, as the bank’s rate-setters at once battle scorching inflation with evidence of an economic slowdown.

In government debt markets, the yield on the 10-year German Bund was flat at 1.35 per cent after days of sharp moves, with eurozone bond yields rising on Monday after steep declines on Friday. The yield on the 10-year US Treasury note rose 0.05 percentage points to 2.95 per cent, while the policy-sensitive two-year yield rose almost 0.1 percentage points to 2.94 per cent. Bond yields rise as their prices fall.

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