World stocks gain on US-China trade hopes, protests leave scars

Reuters . London | Published: 00:00, Nov 16,2019


A file photo shows the German share price index DAX graph at the stock exchange in Frankfurt, Germany. — Reuters photo

Hopes of a trade deal between Washington and Beijing turned world stock markets and other risk assets higher on Friday, though an escalating wave of global protests from Hong Kong to Chile left some deep scars.

Europe’s main bourses followed Asia and Wall Street higher after White House economic adviser Larry Kudlow said on Thursday that the US and China were getting close to an agreement and were talking every day.

‘We’re getting close,’ he told an event at the Council on Foreign Relations in Washington. ‘The mood music is pretty good, and that has not always been so in these things.’

It kept alive hopes that MSCI’s 49-country world index and Europe’s STOXX 600 could both avoid their first weekly falls since the start of October, but others had little chance.

Emerging market stocks were down 1.7 per cent for the week, while the violent escalation of prodemocracy protests in Hong Kong left the Hang Seng down 4.7 per cent, its worst weekly performance in four months.

Chinese blue-chip shares ended the day down 0.75 per cent and 2.4 per cent, their biggest fall since August, while fierce anti-government protests in Chile gave its currency its worst week since 2011 with a 7 per cent plunge.

Shane Oliver, chief economist at AMP Capital in Sydney, likened regional markets’ bullish reaction to positive trade news to being in a relationship with an alcoholic, driven by entrenched hopes for recovery.

‘Markets want to believe that there will be some sort of resolution to this issue, some sort of lasting truce at least, even though the experience of the last 18 months doesn’t give a lot of cause for comfort,’ he said.

However, Oliver said that weaker Chinese and US economies as well as the US presidential election next year put pressure on both sides to come to an agreement.

In currencies, the safe-haven yen weakened, with the dollar rising 0.17 per cent to buy 108.57 yen. The euro was barely changed at $1.1023 and the dollar index, which tracks the greenback against a basket of six major rivals was off just 0.02 per cent at 98.143.

Higher US treasury yields also illustrated the risk-on tone in the Asian session, with the 10-year yield rising to 1.848 per cent from a US close of 1.815 per cent on Thursday.

The policy-sensitive two-year yield rose to 1.6101 per cent from 1.593 per cent on Thursday after US Federal Reserve Chair Jerome Powell said the risk of the US economy facing a dramatic bust is remote.

A Reuters poll of more than 100 economists showed that while concerns have eased over a US recession, few see an economic rebound, and most believe a trade truce is unlikely in the coming year.

Government borrowing costs in Germany and France also inched up on Friday, but were set for sizeable weekly declines, in contrast to southern European countries that have come under heavy selling pressure again this week.

Germany’s 10-year Bund yield was at -0.33 per cent off more than one-week lows hit on Thursday. But it is down 8 bps on the week, set for the biggest weekly fall since mid-August. Dutch 10-year bond yields are down 7 bps this week, and French yields are 5 bps lower.

Data on Thursday had showed Germany’s economy grew just 0.1 per cent in the third quarter, with consumer spending helping the country to avoid a mild contraction and a technical recession of two quarters of economic shrinkage.

‘In general, there has been risk aversion in recent days and a shift to core bond markets from the periphery,’ said Daniel Lenz, a rates strategist at DZ Bank.

Global sentiment has been buffeted in recent weeks by conflicting assessments of progress in talks between the United States and China aimed at ending their 16-month-long trade war.

China’s commerce ministry said that the two countries are holding ‘in-depth’ discussions on a first phase trade agreement, and that cancelling tariffs is an important condition to reaching a deal.

China has also ended a nearly five-year ban on imports of US poultry meat, which the US trade representative said would lead to more than $1 billion in annual shipments to China.

Those developments followed comments from officials from both countries last week that they had a deal to roll back tariffs, only to have US president Donald Trump deny that any such deal had been agreed to.

The new record for the S&P, which gained just 0.08 per cent to 3,096.63, came despite a grim outlook from network gear maker Cisco Systems that underlined the impact of trade uncertainty.

In commodity markets, US crude prices rebounded after sliding Thursday on rising US crude inventories. US West Texas Intermediate crude was 0.44 per cent higher at $57.02 a barrel.

Global benchmark Brent crude added 0.37 per cent to $62.51 per barrel.

Gold retreated from gains that had been prompted by trade uncertainty. Spot gold was last trading at $1,463.90 per ounce, down 0.48 per cent.

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