Trade hopes lift stocks as recession fears recede
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[November 04, 2019] By
Tom Wilson
LONDON (Reuters) - World shares touched a
21-month high on Monday on signs that the United States and China could
soon put an end to a damaging trade war as well as indications that the
world may yet dodge an economic recession.
Beijing and Washington spoke on Friday of progress in talks aimed at
settling a trade dispute that has bruised the global economy and
repeatedly shaken financial markets, with U.S. officials saying a deal
could be signed this month.
The MSCI world equity index <.MIWD00000PUS>, which tracks shares in 47
countries, climbed 0.3% to its highest since February 2018, with major
European indexes following Asia upwards.
European stocks followed Asian indexes upwards, with the broad Euro
STOXX 600 <.STOXX> gaining 0.9%. Frankfurt's main index <.GDAXI>, seen
as highly exposed to the trade war, climbing 1.2% to reach its highest
since June last year.
Wall Street futures <ESc1> gained 0.5%.
![](http://archives.lincolndailynews.com/2019/Nov/04/images/ads/current/graue_sda_2016.png)
The optimistic tone reached currency markets, too, with the Chinese yuan
<CNH=EBS> rising to a 12-week high versus the dollar.
Investors expect the world's two biggest economies to reach a "phase
one" trade deal, with U.S. President Donald Trump hoping to sign an
agreement with Chinese President Xi Jinping.
The key date in focus is Dec. 15, when new U.S. tariffs on Chinese
imports from toys to electronics are due to kick in.
Both sides have an interest in averting those tariffs, with Trump in
particular seen as aiming to reap political benefits from sealing a deal
ahead of the 2020 presidential election.
"It will be a convenient decision for President Trump to let phase one
be signed," said Alessia Berardi, senior economist at Amundi. "This is a
kind of low-hanging fruit to collect and is very much possible."
Still, Berardi warned that intellectual property would be a thornier
issue and could yet complicate talks next year.
Earlier, the positive mood on trade had sent Asian stocks surging, with
MSCI's broadest index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> up 1.2%.
Indexes in Hong Kong <.HSI> and Seoul <.KS11> gained 1.7% and 1.4%
respectively, while mainland Chinese blue chips <.CSI300> added 0.7%.
ECONOMIC RESILIENCE?
Also emboldening investors was a sense that a global recession,
predicted by many economists and investors to hit next year, was a
diminishing risk.
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![](../images/110419pics/busine17.jpg)
People walk under an electronic board showing stock information at
the Shanghai Stock Exchange in Shanghai, China, September 22, 2015.
REUTERS/Aly Song
![](http://archives.lincolndailynews.com/2019/Nov/04/images/ads/current/debbiesfloral_lda_OPENHOUSE_2019.png)
On Friday, a better-than-expected U.S. jobs report added to signs of economic
resilience. Job growth slowed less than expected in October, with hiring in the
two months before that better than previously estimated.
"The macro environment is still resilient, stabilized and maybe even showing
signs of improvement - and that is a net positive for risky assets," said
Olivier Marciot, senior portfolio manager at Unigestion.
Bond markets, too, suggested that the United States may have dodged a slowdown.
The three-month to 10-year Treasury yield curve - a key warning sign of U.S.
recession when inverted - is rising again after staying in negative territory
for long periods since May.
And on the earnings front, U.S. results are for the third straight quarter
defying expectations for an annual aggregate contraction.
"Expectations were low going into earnings, and things are getting better than
expected," Marciot said.
Graphic: China's yuan strengthens,
https://fingfx.thomsonreuters.com/
gfx/mkt/12/8162/8093/yuanstronger.png
WAITING FOR LAGARDE
As the Chinese yuan strengthened, the euro trod water. Investors were waiting
for Christine Lagarde's first speech as European Central Bank president.
Markets are assuming that Lagarde, due to talk at 1800 GMT, will stick with the
easy policy script of her predecessor, Mario Draghi.
Lagarde has struck a balanced tone in recent comments, saying an accommodative
monetary policy was needed but also had side effects that needed monitoring.
![](http://archives.lincolndailynews.com/2019/Nov/04/images/ads/current/hartsburggrain_sda_2019.png)
The euro <EUR=EBS> was last flat at $1.1161, close to the $1.1180 high reached
last month. The dollar against a basket of six major currencies <.DXY> edged up
0.1% to 97.289.
In commodities, oil prices crept higher on the trade optimism. Brent crude
futures <LCOc1> gained 69 cents to $62.58 a barrel shortly before midday, its
highest in over a month.
(Reporting by Tom Wilson; Editing by Hugh Lawson)
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