World stocks rally to six-month highs on U.S.-China trade optimism

LONDON - 3 April 2019: World stocks rallied to six-month highs on Wednesday as investors cheered signs of progress in U.S.-China trade talks and reassuring economic data, helping push Germany’s 10-year bond yield back up to zero percent.

Oil neared the key $70 per barrel mark — a multi-month high — on supply concerns.

Sterling extended its gains after British Prime Minister Theresa May said late on Tuesday she would seek another Brexit delay to agree an EU divorce deal with the opposition Labour Party leader, raising hopes of a “softer” Brexit.

Signs of progress in U.S.-China trade talks and decent factory activity data from China and the United States in recent days has lifted investor sentiment and taken the edge off world recession fears.

Europe’s stock markets rose almost 0.8 percent to their highest since August, tracking strong overnight gains in Asia where MSCI’s broadest index of Asia-Pacific shares outside Japan climbed to a seven-month peak.

Hopes for a deal to end the trade war between the world’s two largest economies were fanned by fresh comments from White House economic adviser Larry Kudlow that Washington expects “to make more headway” in talks this week.

“We’re being told that we’re 90 percent of the way there which is obviously encouraging but the final 10 percent — which apparently includes the enforcement mechanism and the removal of tariffs — could take some time to iron out,” said Craig Erlam, senior market analyst at Oanda in London.

“Investors are happy to be patient here in the hope that the two sides get this right and put an end to a trade war that has clearly taken its toll on markets.”

Germany’s stock market rose 1 percent to its highest level since October, while in Paris, French stocks scaled a similar high. The stronger tone to the pound, however weighed on London’s FTSE index, which was a touch lower.

Generally strong world stocks and hopes of a softer Brexit sparked a sell-off in safe-haven government bonds, pushing yields off recent lows.

U.S. 10-year Treasury yields rose almost 4 basis points to 2.52 percent.

Germany’s benchmark 10-year German Bund yield rose to 0.005 percent. A week ago it hit a 2-1/2 year low at around minus 0.09 percent on concern about the weak economic growth backdrop.

“What we’re seeing is that markets have climbed a world of worry but there is progress on trade, a recession is unlikely, central banks have made nods to more dovish policy,” said Chris Bailey, European Strategist at Raymond James. “If you put that into the mix I’m not surprised risk assets have moved up.”

Oil prices stood near multi-month highs amid concerns about supply. Brent crude rose to as high as $69.92 per barrel, its highest since November and near the psychologically important level of $70 per barrel.

It was last up 0.6 percent at $69.80. U.S. West Texas Intermediate (WTI) crude rose 0.34 percent to $62.79 per barrel.

News that the United States is considering more sanctions against Iran, the fourth-largest producer of the Organization of the Petroleum Exporting Countries (OPEC), and the halting of production at a crude terminal in Venezuela threatened to squeeze supply and pushed oil prices up on Tuesday.

BREXIT ROLLER COASTER

Sterling rose further as traders welcomed news that Britain’s May would begin cross-party talks with the opposition Labour party as a signal that Britain will end up with a “softer” exit from the European Union.

The pound strengthened 0.4 percent higher at $1.3196, its highest since March 28. The British currency had slipped below $1.30 on Friday on growing fears of a no-deal Brexit.

The dollar strengthened 0.2 percent against the yen to 111.54 and the euro added 0.1 percent to buy $1.12170.

The dollar index, which tracks the greenback against a basket of six major rivals, eased 0.19 percent to 97.176.

Cryptocurrency bitcoin, which surged 18.7 percent on Tuesday following a major order by an anonymous buyer, extended its gains by another 1.6 percent to $4,977.48.

Spot gold dipped 0.08 percent to trade at $1,291.31 per ounce.