Trade talks keep stocks afloat, weak PMIs sink euro

[July 24, 2019]  By Ritvik Carvalho

LONDON (Reuters) - Global shares crept higher on Wednesday as prospects of fresh China-U.S. trade talks drew a guarded welcome from investors, while dour data on euro zone economic activity hit the euro ahead of a European Central Bank policy meeting.

Downbeat earnings as well as weaker-than-expected purchasing manager surveys in France and Germany took European shares and the euro a leg lower, with the single currency hitting two-month lows.

MSCI'S All-Country World index of stocks extended its previous day's gains by a whisker, rising 0.02%.

Broad sentiment was boosted by a Bloomberg report that U.S. Trade Representative Robert Lighthizer would travel to Shanghai next week for meetings with Chinese officials.

White House economic adviser Larry Kudlow on Tuesday called it a good sign and said he expected Beijing to start buying U.S. agriculture products soon.

Chinese blue chips climbed 0.8% while MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.1%.

"While the resumption of trade talks appears to mitigate any near-term deterioration in US-China tensions, prudent investors will not get carried away, seeing as a meaningful deal still seems a long way off," said Han Tan, market analyst at FXTM.

Stocks are just a whisker away from all-time highs, buoyed by expectations of a wave of policy stimulus by global central banks and a resulting sharp decline in bond yields.

The ECB is thought likely to at least offer a nod to easier policy at its meeting on Thursday.

Futures remain 100% priced for a rate cut of 25 basis points from the Federal Reserve next week, and even imply an 18% chance of 50 basis points.

The prospect of widespread central bank largesse helped take the sting out of a downgrade to the IMF's global growth forecasts.

"There are two conflicting catalysts for stock traders right now: on one hand, central banks around the world are about to embark on an easing initiative...," said Konstantinos Anthis, head of research at ADSS.

"On the other though, the slowdown in growth on a global scale and various geopolitical factors keep weighing down on corporate profitability, asking questions on whether equities have peaked."

EUROGLOOM

The dollar got a hand-up from a deal to end a deadlock over the U.S. budget, with the index that measures it against a basket of other currencies up 0.05%.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, July 23, 2019. REUTERS/Staff/File Photo

The euro hit two-month lows at $1.1127, falling further after the weak PMIs. It also hit a near seven-month trough against the yen at 120.19 though it recovered from a two-year low versus the Swiss franc.

A recession in Germany's manufacturing sector worsened in July with the performance of goods producers dropping to the lowest level in seven years while French business growth slowed unexpectedly, the purchasing manager surveys showed.

Sterling rose 0.1% to $1.2452 having fallen for three sessions in a row as the Brexit outlook got ever murkier.

Boris Johnson will become Britain's new prime minister on Wednesday, with investors unclear as to whether he will lead the country to a no-deal EU exit or find a compromise.

"We believe that in the short term the market is overstating the risk of a no deal," said Mark Haefele, chief investment officer at UBS Global Wealth Management.

"While a no-deal Brexit remains possible over the longer term, our view is that the most likely path in the short term is for a further extension to the UK's 31 October exit day, either due to a change in stance from PM Johnson, or in the case of a general election."

Gold gained nearly half a percent to $1,423.65 per ounce, though it was still short of last week's peak of$1,452.60.

Oil prices nudged higher on rising tensions over Iran, a sharp fall in U.S. crude stocks and positive signs on Sino-U.S. talks, although worries about weak demand kept a cap on gains.

Brent crude futures added 0.2 percent to $63.96, while U.S. crude rose 0.4% to $56.99 a barrel.

(Reporting by Ritvik Carvalho; editing by John Stonestreet)

[© 2019 Thomson Reuters. All rights reserved.]

Copyright 2019 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.