An investor smiles after the Shanghai Composite Index rose 4.9% on Monday in its best day for a month. Photograph: Xie Zhengyi/Xinhua Press/Corbis
Stock markets around the world have been lifted by hopes that the Chinese government will allow its currency to devalue to boost growth after figures at the weekend showed a surprise slump in exports from the world’s second-largest economy.
The FTSE turned a near 80-point loss into a 17-point gain on Monday as investors speculated that Beijing will move to offset further bad news from its manufacturing sector on Wednesday with a package of measures to help exports. In New York, the Dow Jones Industrial Average was up 223 points, or 1.3%, in early afternoon trading.
Copper prices recovered from a six year-low while oil prices edged back to $49.77. The oil price had slumped in early trading after the mixed weekend figures from China showed crude oil imports rose by 4.1% in July from June, but broader trade data revealed an 8.3% slump in exports. Fears that Chinese economic activity was slowing helped push the benchmark North Sea Brent oil down to $48.24 a barrel, its lowest level in more than six months.
Analysts said they expected China’s central bank to respond with a further easing of monetary policy to push down borrowing costs and the value of the currency. Wei Yao, an analyst at Société Générale, said: “Judging from recent data, the economy is still under immense downward pressure.”
She said high pork prices were a major factor squeezing disposable incomes and forcing the government to act. China produces and consumes approximately half the world’s pigs.
Yao said: “Higher pork prices squeeze other consumption in the absence of any acceleration in income growth. Therefore, fiscal policy has to step up and monetary policy is likely to play an assisting role by providing targeted liquidity.”
The central bank is not likely to cut its main interest rate, but would use other, less obvious methods of easing the constraints on banks to lend, she said.
China has suffered a year-long slowdown that has dragged down global growth and hit neighbouring Vietnam, Thailand and South Korea, which rely on it as the engine of the region’s economic growth.
Alongside the instability in the global economy wrought by the Greek debt crisis, China’s economic woes have been the main drag on growth over the past year. A sharp slide in share values on the Shanghai stock market last month alarmed Chinese investors and was only prevented from turning into a rout after the central bank stepped in to impose tight trading rules.
Jeremy Batstone-Carr, a market analyst at Charles Stanley, said more weak data from China could prompt the Beijing authorities to allow the currency to devalue against the dollar and the euro. He said: “The pressure is rising on China to devalue, which would support China’s equity [markets].”
Prices of most commodities have tumbled on world markets over the past six months as traders forecast declining sales in China. Foodstuffs have joined a slump in metals and energy prices following predictions that China, which has struggled with an overheated property market and the recent stock market crash, may not maintain its previously strong rate of growth. But on Monday, the Shanghai Composite Index had its best day since early July, climbing 4.9% to 3,928.
Mainland investors brushed off the gloomy data at the weekend and pinned their hopes on fresh support measures for the economy. Du Changchun, an analyst at Northeast Securities in Shanghai, said: “China’s economic indicators are not very good, which means monetary policy will continue to be accommodative.”
The figures show exports to the EU fell 12.3% in July, while those to the US dropped 1.3%. Demand from Japan, another big trading partner, slid 13%. China’s factory activity suffered its biggest contraction in two years in July as the number of new orders fell.
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