Trade talks keep stocks afloat
Asia stocks welcome trade talks
Global shares held on to recent gains on Wednesday as the prospect of new China-US trade talks drew a guarded welcome from investors, while dour data on euro zone economic activity hit the euro before a European Central Bank policy meeting. Downbeat earnings as well as weaker-than-expected purchasing manager surveys in France, Germany, and the euro zone as a whole pushed European shares and the euro lower, with the single currency dropping to two-month lows.
MSCI’S All-Country World index of stocks was flat on the day, keeping its half a percent gain from the previous day. Futures indicated a lower open on Wall Street. Broad sentiment was buoyed by a Bloomberg report that US Trade Representative Robert Lighthizer would travel to Shanghai next week for meetings with Chinese officials. White House economic adviser Larry Kudlow on Tuesday called it a good sign and said he expected Beijing to start buying US agriculture products soon. Chinese blue chips climbed 0.8% and MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.1%.
While the resumption of trade talks appears to mitigate any near-term deterioration in US-China tensions, prudent investors will not get carried away, seeing as a meaningful deal still seems a long way off, said Han Tan, market analyst at FXTM. Stocks are below all-time highs, buoyed by expectations of a wave of policy stimulus by global central banks and consequently a decline in bond yields. The ECB is expected to at least nod to looser policy at its meeting on Thursday. —VoM
Futures remain 100% priced for a rate cut of 25 basis points from the Federal Reserve next week and imply an 18% chance of 50 basis points.
Asian shares on Wednesday gave a guarded welcome to hints of progress in the Sino-US trade saga, while the dollar hit two-month highs on the euro as investors wagered on a dovish outcome from the European Central Bank’s coming policy meeting. Sentiment had been helped by a Bloomberg report that US Trade Representative Robert Lighthizer would travel to Shanghai next week for meetings with Chinese officials.
White House economic adviser Larry Kudlow on Tuesday called it a good sign and said he expected Beijing to start buying US agriculture products soon. Japan’s Nikkei added 0.5 per cent, while Australian stocks rose 0.8 per cent to all-time highs. MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.4 per cent and Chinese blue chips climbed 1.2 per cent. Not so welcome was news the US Justice Department was opening an antitrust investigation of major digital tech firms and possible anticompetitive practices.
The DoJ cited concerns about search, social media, and some retail services online – an apparent reference to Alphabet, Amazon.com and Facebook. Facebook reports results on Wednesday and Amazon and Alphabet on Thursday. Nasdaq futures fell 0.2 per cent in Asian trade, while E-Mini futures for the S&P 500 eased 0.1 per cent. The news took a little of the gloss off a solid overnight session for Wall Street, where upbeat quarterly reports from Coca-Cola and United Technologies helped ease some concerns about earnings.
The Dow had ended Tuesday up 0.65 per cent, while the S&P 500 gained 0.68 per cent and the Nasdaq 0.58 per cent. Stocks are just a whisker away from all-time highs buoyed by expectations of a wave of policy stimulus by global central banks and a resulting sharp decline in bond yields.
The ECB is thought likely to at least offer a nod to easier policy at its meeting on Thursday.
Futures remain 100 per cent priced for a rate cut of 25 basis points from the Federal Reserve next week, and even imply an 18 per cent chance of 50 basis points.
The prospect of wide scale central bank largesse helped take the sting out of the IMF’s latest downgrade to its global growth forecasts. While yields on two-year Treasuries edged up to 1.837 per cent overnight, they remain far below the cash rate and down 66 basis points for the year so far. In currencies, the US dollar got a hand up from a deal to end the US budget impasse, while the euro suffered a bout of nerves in case the ECB takes a more dovish turn.
The single currency was down near two-month lows at US$1.1144 , having shed 0.5 per cent overnight, and hit a near seven-month trough on the yen at 120.45. The dollar nudged up on the yen to 108.23, but stayed confined within recent well-worn ranges. Against a basket of currencies, the dollar firmed to a five-week top at 97.742 . Sterling loitered at US$1.2433 having fallen for three sessions in a row as the outlook on Brexit got ever murkier.