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Stocks inch higher as investors look ahead to trade talks, Brexit

[February 11, 2019] By Ritvik Carvalho

LONDON (Reuters) - World stock markets edged higher on Monday, as investors eyed the resumption of trade talks between the United States and China and watched for signs of progress on Brexit.

European markets took their cue from a 1 percent bounce in Chinese shares, which resumed trading after the week-long Lunar New Year holiday.

The pan-European STOXX 600 index rebounded from one-week lows, helped by some deal-making and gains in mining and banking shares. It was up 0.65 percent. [.EU]

U.S. stock futures indicated a positive open on Wall Street.

Worries about a slowdown in global growth, an ongoing U.S.-China trade dispute and U.S. politics have been foremost in investors' minds.

Safe-haven bonds and the dollar have gained amid the prolonged uncertainty, but stocks have also made a good start to the year, with MSCI'S All-Country World Index up nearly 10 percent. The index was 0.1 percent higher on Monday.

The dollar reached its highest in six weeks against a basket of currencies, rising for an eighth consecutive day as investors piled into the world's most liquid currency. [FRX/]

This week's focuses for investors are likely to be the resumption of U.S.-China trade talks and Brexit, John Hardy, head of FX strategy at Saxo Bank, said in a note.

"The chief focus will be on that broad U.S. dollar picture and whether resistance gives way for another leg higher, driven by preference for the liquidity of the U.S. dollar as the global outlook remains concerning on all fronts," he said.

"The risk remains that investors are unwilling to commit to a breakout until we see what emerges from U.S.-China trade negotiations and Brexit."

Just six weeks before Britain is due to leave the European Union, it still has no exit plan in place. Data on Monday showed the British economy grew last year at its slowest since 2012.

China struck an upbeat note as the trade talks resumed, but it also expressed anger at a U.S. Navy mission through the disputed South China Sea, casting a shadow over the prospect for improved Beijing-Washington ties.

The two sides are trying to come up with a deal before March 1, when U.S. tariffs on $200 billion worth of Chinese imports are scheduled to increase to 25 percent from 10 percent.

Worries about Europe's economic slowdown and plunging inflation expectations dominated morning trade in debt markets.

The yield on Germany's 10-year Bund, considered the risk-free benchmark for the region, held close to 0.10 percent after touching 0.77 percent on Friday, its lowest since October 2016. The European Commission downgraded its euro zone growth forecasts last week. [GVD/EUR]

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The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, February 8, 2019. REUTERS/Staff

A collapse in talks between U.S. Democrat and Republican lawmakers has meanwhile raised fears of another government shutdown there.

"Trade talks and shutdown (worries) are really weighing on markets," said Sebastian Fellechner, rates strategist at DZ Bank. "We don't see any major movements because of the general and global uncertainty."

The rising threat to growth means equity markets will focus on earnings from major U.S. companies for clues about the health of consumer shares. These include Coca-Cola Co, PepsiCo Inc, Walmart Inc, Home Depot Inc, Macy's Inc and Gap Inc.

Analysts now expect first-quarter earnings for S&P 500 companies to decline 0.1 percent from a year earlier. That would be the first such quarterly profit decline since 2016, according to IBES data from Refinitiv.

In Asia, China's blue-chip index surged 1.6 percent. Shanghai's SSE Composite climbed 1.2 percent.

Australian stocks recouped some losses to end 0.2 percent lower. South Korea's KOSPI index was up 0.2 percent. Indonesian and Indian benchmarks were in the red.

That left MSCI's broadest index of Asia-Pacific shares outside Japan slightly higher after it fell from a four-month high on Friday. Trading volumes were generally light, with Japan closed for a public holiday.

Elsewhere, the euro was 0.05 percent lower at $1.1317 after five straight days of losses took it to more than two-week lows. Sterling fell to $1.2895 after the Q4 GDP data was released. [GBP/]

British Prime Minister Theresa May has rejected the idea of a customs union with the European Union, ending hopes she would shift her Brexit policy to win over the opposition Labour Party, leaving Britain still on course for a disorderly exit.

The Australian dollar inched up from Friday's one-month lows, although sentiment was still cautious after the central bank opened the door to a possible rate cut.

Oil prices slipped on concern about slowing global demand and a pick-up in U.S. drilling activity. <O/R>

U.S. crude was 0.8 percent lower at $52.31 per barrel. Brent was 0.2 percent lower at $61.97.

(Reporting by Ritvik Carvalho; additional reporting by Virginia Furness and Sujata Rao in London; Editing by Catherine Evans)

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