Sliver of hope for trade deal buoys battered stocks

[May 10, 2019]  By Ritvik Carvalho

LONDON (Reuters) - Global stocks gained on Friday after a battering this week as investors held out a sliver of hope for a trade deal amid last-ditch talks between the United States and China, even as a fresh round of U.S. tariffs on Chinese goods took effect.

European stock markets bounced off six-week lows, with Germany's trade-sensitive DAX index leading the charge with a 1% rise.

MSCI's All-Country World Index, which tracks stocks across 47 countries, was up 0.24% by midday in London.

But the gauge was set for its worst weekly performance since late December 2018, with a loss of 2.75% as bets on an imminent trade deal between the U.S. and China unraveled after tensions unexpectedly flared up during negotiations between the two sides.

The Japanese yen was 0.1% lower to the dollar.

U.S. President Donald Trump's tariff increase to 25% from 10% on $200 billion of Chinese goods kicked in on Friday, and Beijing said it would strike back.

Top U.S. and Chinese negotiators are in talks to try to rescue a faltering deal aimed at ending a 10-month trade war between the world's two largest economies.

"Investors seem to have concluded this (tariff increase) is indeed only a negotiating ploy and remain hopeful that the situation won't escalate further," said Marios Hadjikyriacos, investment analyst at online broker XM, adding that markets were pricing a deal as the most likely endgame.

"To believe that a deal can be sealed in a couple of weeks and that matters won't escalate any further before we get there seems like wishful thinking."

Others were even less sanguine: UBS Wealth Management cut its exposure to emerging market stocks late Thursday, changing its portfolio as the intensification of trade tensions took its toll on markets, the asset manager said in a note.

E-mini futures for the S&P 500 index of stocks were down 0.3%, indicating a lower open on Wall Street. The VIX volatility gauge stood at 19.08, down from its highest level since January hit on Thursday.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, April 24, 2019. REUTERS/Staff

The White House has said the two sides would resume negotiations on Friday morning in Washington after concluding the first of two days of talks on Thursday.

Asian shares lost some of their gains after the U.S. tariff hike, with investors worried that a protracted trade war could hamper global economic growth.

MSCI's broadest index of Asia-Pacific shares outside Japan, which dropped more than 1% early Friday, remained where they were when tariff increase kicked in, up 0.3%.

Japan's Nikkei was off 0.3%.

In currencies, the dollar was lower by 0.03% against a basket of peers. The Japanese yen was flat, having gained 1.2% this week. The euro was higher by 0.2% at $1.1232, set for a second week of gains.

German 10-year government bond yields were headed for their biggest weekly fall in seven weeks in a sign that a ratcheting up in U.S./China trade tensions have exacerbated concern about the global growth outlook.

Oil prices rose. Brent was up 0.6% to $70.80 a barrel while U.S. West Texas Intermediate (WTI) crude fell 0.5% to $62.02.

Gold ticked up 0.1% to $1,285.55 per ounce.

(Reporting by Ritvik Carvalho; Additional reporting by Andrew Galbraith in Shanghai, Noah Sin in Hong Kong, Daniel Leussink and Hideyuki Sano in Tokyo; Editing by Hugh Lawson, William Maclean)

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