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U.S.-China trade hopes lift world stocks, oil soars

[January 09, 2019] By Karin Strohecker

LONDON (Reuters) - World stocks extended their gains to hit a near-four week high and oil prices rose on Wednesday on optimism that the United States and China may be inching toward a trade deal, soothing fears of an all-out trade war.

Delegations from China and the U.S. ended talks that had lasted longer than expected in Beijing on Wednesday amid signs of progress on issues including purchases of U.S. farm and energy commodities and increased access to China's markets. Officials said details would be released soon.

MSCI's all-country index <.MIWD00000PUS> sailed 0.5 percent higher in a fourth day of gains.

Hopes for a trade deal boosted Europe's export-oriented autos and tech sectors and lifted the pan-European STOXX 600 <.STOXX> benchmark to a three-week high. Germany's DAX <.GDAXI>, France's CAC 40 <.FCHI> and the UK's FTSE 100 <.FTSE> all gained around 1 percent to hover at multi-week highs.

U.S. stock futures <ESc1> <NQc1> <YMc1> firmed between 0.2 and 0.4 percent, pointing to another upbeat session ahead for Wall Street after the S&P 500 <.SPX> gained nearly 1 percent on Tuesday.

Asian bourses saw a strong finish with Japan's Nikkei <.N225> and China's blue-chip CSI 300 <.CSI300> closing up 1 percent while the tech-heavy South Korean KOSPI <.KS11> jumped nearly 2 percent.

"The positive news around the trade talks is giving a boost to risk assets – it's what the global economy needs to see,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.

Adding to the upbeat mood were reports that Beijing plans to introduce policies to boost domestic spending on items such as autos and home appliances this year. These come on the back of Friday's monetary easing by the People's Bank of China.

"China are now firmly off the brakes and back on the accelerator," said Karen Ward, chief market strategist for EMEA at JPMorgan Asset Management.

"The sugar rush that's fading in the U.S., we are going to get that rush coming through in China."

However, details on the outcome of the latest trade talks were scant and sources said the two sides were still far from U.S. demands for structural reforms in China.

SUGAR RUSH

The rally in riskier assets has accelerated since last Friday, when Federal Reserve Chairman Jerome Powell said he was aware of risks to the economy and would be patient and flexible in policy decisions this year.

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The London Stock Exchange Group offices are seen in the City of London, Britain, December 29, 2017. REUTERS/Toby Melville

Oil prices roared 2 percent higher in their eight day of gains. U.S. West Texas Intermediate (WTI) crude oil futures <CLc1> have soared more than 20 percent since hitting an 18-month low in late December and have now broken through the $50 per barrel overnight for the first time in 2019.

U.S. bond yields also climbed, with the benchmark 10-year Treasuries yield rising to 2.7386 percent, compared with its one-year low of 2.543 percent hit just before Friday's strong payrolls data.

In another sign of subsiding worries about the U.S. economic outlook, Fed funds rate futures <0#FF:> showed traders are now pricing in a small chance of a rate hike in 2019, a change from late last week when futures markets had priced in a cut.

In currency markets, the dollar index <.DXY> softened to 95.835 against a basket of currencies after flirting in early trading with a 2-1/2 month low hit on Monday. The euro traded at $1.1452 <EUR=> while the dollar stood at 108.86 yen <JPY=>.

China's yuan <CNH=> strengthened in offshore trading by 0.4 percent, hitting its strongest level in five weeks.

Sterling gained 0.2 percent against the dollar <GBP=D3> and strengthened against the euro <EURGBP=D3> following a media report that British Prime Minister Theresa May is attempting to win over the Northern Irish DUP party in a crucial vote next week on her Brexit deal.

The British parliament is due to vote on the EU withdrawal bill on Jan. 15 and the issue is likely to dominate sterling trade in the run-up. May will lose the vote unless she can convince opponents both within and outside her Conservative Party to back the deal.

(Reporting by Karin Strohecker in London, Hideyuki Sano and Tomo Uetake in Tokyo, additional reporting by Dhara Ranasinghe and Sujata Rao in London; Editing by Robin Pomeroy)

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