Earnings lift stocks, euro recovers from dovish ECB comments

[January 25, 2019]  By Ritvik Carvalho

LONDON (Reuters) - World stock markets inched higher on Friday as strong earnings helped to underpin investor sentiment in the face of growing signs that the global economy is slowing and a still unresolved trade dispute between the United States and China.

The euro recovered lost ground against the dollar after falling to its lowest in six weeks following Thursday's European Central Bank meeting.

European markets opened firmer, with the automakers and tech sector indices rising 1.5 percent and 1 percent respectively. The pan-European STOXX index hit its highest since Dec. 4, up 0.8 percent on the day.

The gains came as stocks rose overnight in Asia and the United States on the back of strong earnings from U.S. tech firms.

MSCI's All-Country World Index, which tracks shares in 47 countries, was up 0.3 percent on the day. But the gauge was set to break a four-week streak of gains as weak economic data and cautious soundings from central banks pulled the index half a percent down on the week.
 

Data at the start of the week showed China's economy grew at its slowest in 28 years in 2018, while purchasing manager indexes in Germany and the euro zone indicated stagnation in the bloc. On Thursday, the European Central Bank alluded to downside risks to growth for the first time in its statement since April 2017, while Germany cut its economic growth forecast for 2019.

SLOWDOWN

Somber news continued to trickle in on Friday, with German business morale falling for the fifth month in a row in January according to the Ifo business climate index.

According to the latest Reuters polls of hundreds of economists from around the world, a synchronized global economic slowdown is underway and any escalation in the U.S.-China trade war would trigger a sharper downturn.

Investors seemed to view the glass as half-full.

In a note to clients, UBS Global Wealth Management's chief investment officer Mark Haefele said that rhetoric on U.S.-China trade has become more positive, and that Beijing has taken steps to stimulate its economy.

"While economic and earnings growth is slowing, we believe it is unlikely that growth will drop far below trend," he said.

"At the same time, there are reasons to be cautious about policymakers' ability to follow through on their rhetoric."

Pedestrians walk past an electronic board showing the graphs of the recent fluctuations of the Japanese yen's exchange rate against the U.S. dollar outside a brokerage in Tokyo, Japan, February 9, 2016. REUTERS/Yuya Shino

Chinese Vice Premier Liu He will visit the United States on Jan. 30 and 31 for the next round of trade negotiations with Washington.

The two sides are "miles and miles" from resolving trade issues but there is a fair chance they will get a deal, U.S. Commerce Secretary Wilbur Ross said on Thursday.

In currencies, the dollar fell 0.2 percent against a basket of peers to 96.422.

The euro was up 0.2 percent at $1.13280, recovering from a six-week low hit in the wake of ECB President Mario Draghi's downbeat comments on Thursday.

The ECB's post-meeting statement for the first time since April 2017 alluded to downside risks to growth.

The British pound was up 0.2 percent at $1.3076 after brushing a two-month high of $1.3140, lifted after The Sun reported on Thursday that Northern Ireland's Democratic Unionist Party has privately decided to back May's Brexit deal next week if it includes a clear time limit to the Irish backstop.

The benchmark 10-year U.S. Treasury note yield was slightly higher at 2.729 percent after dropping to a one-week low as pessimism over global growth supported safe-haven government debt.

Crude oil extended gains after rallying the previous day as the United States threatened sanctions on Venezuela's crude exports as the country descended further into political and economic turmoil.

U.S. crude oil futures were up 0.7 percent at $61.52 per barrel after gaining 1 percent on Thursday.

(Reporting by Ritvik Carvalho; additional reporting by Shinichi Saoshiro in Tokyo; Editing by Gareth Jones)

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