Financial markets around the world have started the year on a high, with stocks rallying in Europe and setting fresh records on Wall Street as optimism grows over the improving global economic outlook.

On the first trading day of the decade, shares surged after China’s central bank announced an 800bn yuan (£87bn) cash increase for the economy, and Donald Trump said phase one of a trade deal between Washington and Beijing would be signed on 15 January.

In a reflection of the rising optimism, the FTSE 100 ended Thursday more than 60 points (0.8%) higher, at 7,604, while European company shares also rallied in Paris, Frankfurt and Milan. In the US, the Dow Jones industrial average reached a record high, extending gains made over the past month.

US election, Brexit and China to sway the markets in 2020 Read more

The People’s Bank of China announced it would cut the amount of cash banks must hold in reserve and indicated it would continue to take action in 2020 to reduce borrowing costs for companies, in an intervention that analysts said could help prevent a growth slowdown in the world’s second-largest economy.

Joshua Mahony, a senior market analyst at the financial trading company IG, said: “With the Chinese pumping $115bn into the banking system, it is likely that the wider economy benefits through an increase in lending for small- and medium-sized companies.”

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Despite the optimism at the start of the year, business surveys have shown factory output in the UK and the eurozone slumped in December, reflecting Brexit concerns in Britain and the impact of the US-China trade war, which held back global trade and sapped business investment in 2019.

Economists said progress between the US and China could be unpicked in the future, warning past examples of compromise had been followed by the trade dispute reigniting.

Craig Erlam, a senior market analyst at the financial trading company Oanda, said: “Everything is not suddenly OK because the US and China are about to sign a phase one trade deal, or because the UK and EU are preparing to discuss the future relationship rather than the divorce. It could be another turbulent year with many surprises along the way.”