Global stocks nearing record highs on trade hopes
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[November 27, 2019]
By Marc Jones
LONDON (Reuters) - World shares made
another push for a record high on Wednesday after U.S. President Donald
Trump said Washington and Beijing were in the final throes of inking an
initial trade deal.
Early European trading was subdued, with MSCI's all-country world index
now within 0.4%, or 2 points, of its record high from January 2018.
London, Frankfurt, Paris and Wall Street futures all rose, and though
Shanghai struggled after Chinese industrial company profits shrank,
Australian shares reached record highs and Japan's Nikkei drew support
from the growing likelihood of extra fiscal stimulus.
A senior Japanese ruling party official said on Wednesday he believed
the government was striving to compile a supportive spending package
worth about 10 trillion yen ($92 billion).
"Something will come out of the phase one (Sino-U.S. trade) talks," said
TD Securities Senior Global Strategist James Rossiter. "Rolling back
tariffs to where they were in August, with the December ones put on hold
or canceled maybe."
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But he said the two countries were unlikely to go beyond that, and
China's declining industrial profits underscored the economic strain
exerted by the tensions.
In currency markets, the dollar was stronger against developed and
emerging currencies, with dollar/yen holding above 109 and euro/dollar
steady at $1.10.
That was despite softer-than-expected U.S. economic data on Tuesday,
which showed a fourth straight monthly contraction in consumer
confidence and an unexpected drop in new home sales in October.
Sterling <GBP=> scuttled sideways as pre-election opinion polls showed
some narrowing of the Conservative lead over opposition parties,
although Prime Minister Boris Johnson is still favored gain an overall
majority.
The reaction to the polls squeeze has been modest as the prospect of
another hung parliament raises the prospect of some form of coalition
government made up of parties supporting a second Brexit referendum.
"So far, the market has been relatively complacent when it comes to the
risks ahead," said Thu Lan Nguyen, FX strategist at Commerzbank. "Yes,
the Tories still have the lead, but they're certainly not gaining."
YouGov will release seat-by-seat predictions of the election outcome at
2200 GMT. The 'multilevel regression' and 'post-stratification' model
accurately predicted the 2017 hung parliament, so it will be closely
watched.
Polling is certainly not infallible though, Thu Lan Nguyen pointed out.
Before the 2016 Brexit referendum, most surveys had predicted the UK
would vote to remain in the European Union.
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The London Stock Exchange Group offices are seen in the City of
London, Britain, December 29, 2017. REUTERS/Toby Melville
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NO FEAR
Another signal of the rising market confidence was the CBOE VIX
equity volatility index <.VIX>, the so-called fear gauge, subsiding
to seven-month lows.
It is now less than half the level it was in August, when U.S.-China
talks looked close to collapsing, and a third of last December's
level when stock markets were pulled lower by trade angst and rising
interest rates.
Kay Van-Petersen, global macro strategist at Saxo Capital Markets in
Singapore, said while Sino-U.S. trade headlines may be driving some
tactical, near-term moves in the market, they were mostly just
"noise".
The broader market direction is "about the accommodative Fed and
accommodative monetary policy and the fact that structurally the
meta-trend is still lower in yields and rates," he said.
China had seized on the plunge in borrowing costs to issue its
biggest international bond ever on Tuesday.
Some analysts said a renewed fall in U.S. and European bond yields
this week also pointed to more mechanical explanations beyond trade
for rising equity prices.
U.S. Federal Reserve Chair Jerome Powell said on Monday that
monetary policy was "well positioned" to support the strong U.S.
labor market.
In emerging markets, traders were watching Brazil's real, which fell
to a record low, below the troughs of the 2015 recession, despite
central bank intervention.
Among the main commodities, oil prices edged lower after reaching
their highest since late September on the reassuring trade
headlines. U.S. West Texas Intermediate crude was down 0.21% at
$58.29 per barrel. Global benchmark Brent crude lost 0.11% to $64.20
per barrel.
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Safe-haven gold changed hands at $1,458.33 per ounce on the spot
market, down 0.2% on the day and heading for its worst month in
almost three years after a 3.5% drop.
(Additional reporting by Andrew Galbraith in Shanghai; editing by
David Clarke, Larry King)
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