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Global stocks rally before trade talks, safe havens slip

Jan 04 2019 14:24
Yakob Peterseil, Bloomberg

Stocks climbed across Europe and Asia and US equity futures pointed to a stronger open as the world’s two largest economies scheduled fresh trade negotiations next week.

Havens slipped, with Treasuries falling and the yen weakening after Thursday’s surge.

Concern over China-US trade tensions that have helped whipsaw stocks this week appeared to ease on news that vice ministers from the two countries are preparing to hold talks starting Monday.

The Stoxx Europe 600 Index shook off two days of losses as every sector advanced, while most Asian markets ended higher.

Stocks in Japan were the exception, as traders there returned from a holiday. Efforts to end a partial government shutdown in America also aided sentiment, and S&P 500 Index futures recouped some losses from a day earlier when the underlying gauge plunged 2.5%.

Traders will now be closely watching Friday’s jobs report for evidence of how US employers capped a strong year of hiring.

The dollar was largely steady, while Treasury yields led most government bond rates higher. The yen trimmed some of the big jump from a day earlier, while gold slipped.

In China, the central bank acted to release cash into the economy to support growth, cutting the amount lenders must hold as reserves. The offshore yuan briefly pared gains.

Optimism for a resolution to the US government shutdown and over trade talks could ease two of the major overhangs that have dogged equities in recent days.

Following poor data from China and Europe, the miserable market performance from last month has continued into the new year, with big swings and flights to safety.

The talks will be the first face-to-face negotiation between the two countries since President Donald Trump and his counterpart Xi Jinping agreed to a 90-day truce in their trade war last month.

"I wouldn’t be surprised if we get better communication on trade," said Stefan Hofer, chief investment strategist at LGT Bank.

Still, "we have beginning-of-the-year jitters, low levels of liquidity and exaggerated swings, which feed people’s worst fears – which I simply can’t sign up to at the moment."

Elsewhere, oil built on recent gains, with Brent crude heading for its biggest weekly advance since 2016 as traders weighed signs that OPEC is following through on production cuts against hints of an economic slowdown.

Here are some events investors may focus on in coming days:

The US December jobs report is due Friday. Fed Chair Powell is interviewed with predecessors Janet Yellen and Ben Bernanke at the annual meeting of the American Economic Association Friday. Atlanta Fed President Raphael Bostic joins a panel on long-run macroeconomic performance.

And these are the main moves in markets:

Stocks

Futures on the S&P 500 Index surged 1.5% as of 11:09 London time, the largest jump in more than a week. The Stoxx Europe 600 Index rose 1.4% to the highest in more than two weeks on the biggest advance in a week.

The UK’s FTSE 100 Index rose 1.2% to the highest in more than two weeks on the largest advance in a week. Germany’s DAX Index rose 1.5%, the biggest advance in a week. The MSCI Asia Pacific Index fell 0.2%. The MSCI Emerging Market Index rose 0.9%, the biggest advance in a week.

Currencies

The Bloomberg Dollar Spot Index fell 0.1% to the lowest in 11 weeks. The euro climbed 0.1% to $1.1407. The British pound gained 0.3% to $1.2672. The Japanese yen sank 0.3% to 108.00 per dollar, the biggest dip in more than a week.

Bonds

The yield on 10-year Treasuries jumped five basis points to 2.61%, the largest surge in more than a week.

Germany’s 10-year yield jumped three basis points to 0.18%, the biggest surge in more than three weeks. Britain’s 10-year yield climbed four basis points to 1.239%, the largest surge in more than a week. The spread of Italy’s 10-year bonds over Germany’s fell two basis points to 2.6833 percentage points.

Commodities

West Texas Intermediate crude climbed 2% to $48.03 a barrel, hitting the highest in more than two weeks with its fifth consecutive advance. Gold sank 0.2% to $1,291.30 an ounce, the first retreat in more than a week and the biggest dip in two weeks.

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