World stocks and oil edge higher; sterling reels from Brexit pain

[January 10, 2017]  By Dhara Ranasinghe

LONDON (Reuters) - World stock markets nudged back toward recent multi-month highs on Tuesday, aided by a rally in commodity prices, although sterling slid for a second straight day on concerns over Britain's future ties with the European Union.

European stock markets, which had opened broadly lower, edged back toward recent one-year peaks, while U.S. stock futures traded marginally higher.

The recovery in share prices came as commodities such as copper gained on further signs of a pick-up in China's economy, while oil prices stabilized after falling almost 4 percent on Monday on doubts that key oil producers would cut output as promised to reduce oversupply.

Brent crude oil prices rose 0.4 percent to $55.14, moving away from Monday's low of $54.74.

Resource stocks were the biggest gainers in European share markets, with the sector up 2.8 percent,  while Britain's blue-chip FTSE index hit a record high on sterling weakness.

Britain's currency hit a fresh 10-week low against the dollar <GBP=> and an eight-week low against the euro <EURGBP=> after weekend comments by British Prime Minister Theresa May that she was not interested in Britain keeping "bits" of its EU membership.

A revival in worries that Britain could be headed for a "hard Brexit", in which it chooses to take full control of immigration and give up access to the single market, reverberated across financial markets, lifting demand for safe-haven assets such as German government bonds and gold, which rose to its highest level in over a month.

EYES ON TRUMP

With little in the way of major U.S. data on the calendar, attention was turning to a news conference on Wednesday by U.S. President-elect Donald Trump, his first since winning the election.

On Monday, declines in energy and financial stocks weighed on the S&P 500 and helped stall the Dow's pursuit of the 20,000 milestone ahead of earnings season and expected U.S. policy changes under Trump.

"Cautiousness ahead of the news conference is turning into a bit of optimism, if you look at how Trump's tweets are playing out in the market," said Naeem Aslam, chief market analyst at Think Markets UK.

"Investors are optimistic after the news on Jack Ma - if he's going to create a million jobs in the U.S., perhaps there won't be too much negative sentiment toward trade-related policies."

An investor looks at an electronic board showing stock information on the first trading day after the New Year holiday at a brokerage house in Shanghai, China, January 3, 2017. REUTERS/Aly Song

Alibaba Executive Chairman Jack Ma met Trump on Monday and laid out the Chinese e-commerce giant's new plan that it hopes will create 1 million U.S. jobs.

CHINA PLANS

How U.S. relations play out with China, the world's second biggest economy, are also a key focus for currency markets, injecting a degree of nervousness.

The dollar dipped against the euro and yen, and was virtually flat against a basket of six major peers, at 101.93, holding below last week's high of 103.82, its highest level since 2002.

"The market is increasingly nervous about Donald Trump’s press conference – for FX markets what will be particularly important will be his plans ... for the trade policy, for the relationship with China," said Commerzbank currency strategist Esther Reichelt, in Frankfurt.

"The Fed has stressed this enormous uncertainty, so ... the main driver right now (for the dollar) is not monetary policy, because monetary policy will react to what we’re going to hear from Donald Trump in the next couple of weeks."
 

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan advanced just 0.5 percent, while Chinese stocks were little changed, largely shrugging off further signs of improvement in the industrial sector. Data showed producer inflation surged to a more than five-year high in December as raw materials prices soared.

A fall in the Turkish lira meanwhile grabbed the spotlight in emerging markets.

The lira slumped 1.6 percent to a fresh record low of 3.77 against the dollar, having weakened almost 7 percent since the start of the year on the weakening economy and militant attacks.

(Additional reporting by Nichola Saminather in Singapore and Jemima Kelly in London; Editing by Janet Lawrence)

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