Stocks pinned near record highs ahead of U.S.-China trade deal

[January 13, 2020]  By Ritvik Carvalho

LONDON (Reuters) - World stock markets were flat on Monday, hovering just below record levels ahead of the expected signing of a Phase 1 China-U.S. trade deal, although markets have yet to see details of the agreement.

After rising in early trade, European shares were last down 0.2% by midday. Germany's DAX fell 0.3%, France's CAC 40 gained 0.05% and Britain's FTSE 100 added 0.19%. The pan-European STOXX 600 index fell 0.22%. [.EU]

U.S. S&P 500 e-mini stock futures were looking more bullish, rising 0.31% to 3,274.8, just short of record highs.

MSCI's All Country World Index, which tracks shares across 47 markets, was up 0.02%, just short of a record high hit last week.

Tensions between the U.S. and Iran after the U.S. killing of a top Iranian general put investors on guard against risk last week, knocking global stocks off a record high set in the first trading week of the year. But with no further escalation in conflict and focus shifting toward this week's trade deal, markets have rebounded.

"Last week there was a lot of focus on the conflict between Iran and the U.S. However, the 'modest' Iranian response to the killing of Suleimani and even some more conciliatory comments from Trump have taken the U.S.-Iran conflict more or less away from the financial agenda," said Arne Rasmussen, chief analyst at Danske Bank in a note to clients.

China's commitments in the Phase 1 trade deal with the United States were not changed during a lengthy translation process and will be released this week as the document is signed in Washington, U.S. Treasury Secretary Steven Mnuchin said on Sunday.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.64%, touching its highest level since June 2018.

South Korea's trade-sensitive Kospi added 1.04% and Hong Kong's Hang Seng was up 1.11%, while Taiwan shares increased 0.74% in the first trading day after Taiwan re-elected President Tsai Ing-wen by a landslide on Saturday.

Mainland Chinese shares lagged the regional index after China's major equity indexes logged their sixth consecutive weekly rise last week, the longest such streak since the first quarter of 2019.

The benchmark Shanghai Composite Index was up 0.19% in the afternoon, turning around from losses earlier in the session.

Investors in China are looking ahead to trade and economic growth data due this week, which is expected to shed more light on early signs of economic improvement after the country logged its slowest pace of growth in nearly three decades in the third quarter.

Japan's Nikkei was closed for a holiday. It fell sharply early last week when Iran attacked bases hosting U.S. military in Iraq, only to rally almost a thousand points when the two countries stepped back from hostilities.

The main event of the week will be the signing of the Phase 1 trade deal between the United States and China on Wednesday. The Trump administration has invited at least 200 people to the White House for the ceremony.

"A calmer geopolitical backdrop and the signing of the U.S.‑China Phase 1 agreement is, on balance, favorable for global growth," said Joseph Capurso, an FX strategist at CBA.

Pedestrians leave and enter the London Stock Exchange in London, Britain August 15, 2017. REUTERS/Neil Hall

"However, the 86-page Phase 1 agreement has not yet been made public. There are doubts how comprehensive the deal is, and whether the Phase 1 agreement will be implemented in full by both governments."

Washington has reserved the right to re‑impose tariffs if it judges China is not abiding by the deal.

Xie said China's fourth-quarter and 2019 full-year GDP figures, due on Friday, are also likely to draw scrutiny as investors look for signs that improvements seen in recent manufacturing surveys are reflected in broader growth and investment figures.

PERFECT FOR RISK

Wall Street slipped and bonds rallied on Friday when data showed U.S. nonfarm payrolls missed forecasts with a rise of 145,000, while wages and hours worked were soft.

"This is the perfect employment report for the Fed to continue to run the economy 'hot', as views on the natural rate of unemployment continue to drop," said Alan Ruskin, Deutsche Bank's global head of FX strategy. "This is perfect for risky assets."

The euro was flat on Monday at 1.1121, up from a $1.1083 low on Friday. Support comes in around $1.1060, while the recent peak at $1.1239 marks stiff resistance.

The dollar was firm on the yen at 109.84 but faces tough resistance around 109.70 where rallies have repeatedly failed in the past couple of months.

Against a basket of currencies, the dollar was 0.14% higher at 97.488, well within the recent trading range of 96.355 to 97.817.

The pound slipped 0.86% to $1.2963 after Bank of England policymaker Gertjan Vlieghe said he will vote for a cut in interest rates later this month, barring an "imminent and significant" improvement in the growth data.

Spot gold slipped 0.6% to $1,552.30 per ounce, having hit a seven-year top last week of $1,610.90 at the height of Iran-U.S. tensions.

Oil prices were slightly firmer after suffering their first weekly loss since late November. [O/R]

Brent crude futures were down 0.25% at $64.82 a barrel, while U.S. crude fell 0.15% to $58.96 a barrel.

(Reporting by Ritvik Carvalho; additional reporting by Wayne Cole and Andrew Galbraith in Shanghai and Sydney, editing by Ed Osmond)

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