Chinese shares push global equities towards six-month high
Global markets benefit from the biggest jump in Chinese stocks for more than two years and Wall Street’s best close since January
London — World shares edged towards a six-month high on Tuesday, as the biggest jump in Chinese stocks for more than two years and an upbeat start for Europe followed Wall Street’s best close since January.
The moves came despite a host of simmering global feuds. Oil prices ticked higher as the US reimposed some sanctions on Iran, while the Turkish lira bounced back almost 2% from its worst day in a decade on Monday that had been prompted by a row with Washington.
The mood lifted overnight as Chinese stocks rebounded 2.7% on the hope of fresh government spending, following a four-day sell-off that had knocked them down about 6%. London, Paris and Frankfurt followed by rising 0.6%-0.9% as Europe’s investors cheered results from Italy’s biggest bank UniCredit and oil firms and miners gained on the rise in crude prices.
"The Chinese have stabilised the yuan, the lira hasn’t been annihilated this morning so once the sharp forex moves have calmed down and as long as the [company] earnings are good, you have a more risk-friendly environment," said Société Générale strategist Kit Juckes.
Currency markets remained volatile although less so than in recent sessions as the dollar dipped.
The euro bounced to $1.1583 from a near six-week low despite a second day of disappointing German economic data, while Britain’s pound made back some ground after Brexit worries had pushed it to an 11-month low.
Turkey’s lira recovered 1.7% from Monday’s losses of more than 5% after Washington had moved to end duty-free access to US markets for some Turkish exports. A report by CNN Turk that Turkish officials would go to Washington to discuss the strained relations helped the rise, although the lira remains close to a record low.
Already struggling with inflation at 14-year highs near 16% and political pressure on the central bank not to raise interest rates, the lira’s year-to-date losses are nearing 30% as jitters about foreign currency debt payments rise.
"Currently the impact of the lira’s slide is mostly contained within the country. But fears of a default will begin to increase if the currency keeps depreciating," said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities. "Such a development could affect some European financial institutions," he said.
Wall Street whoosh
An impressive global earnings picture and upgrades to the US profit growth horizon outweighed the global trade tension and the various emerging market dislocations.
Wall Street’s S&P 500 closed at its highest level since January 29 overnight, less than 1% from its record high hit earlier that month.
The Vix volatility gauge closed at its lowest since January 26.
A surge in US corporate earnings driven by tax cuts — they achieved an annual aggregate growth rate of about 25% in the second quarter — has prompted the likes of Citi to upgrade their end-2018 and 2019 earnings forecasts.
Wall Street buoyed market sentiment around the world, with Tokyo and Seoul both up 0.6% and Hong Kong closing up more than 1% along with Shanghai’s big bounce.
In commodities, oil extended the previous day’s rally after the imposition of US sanctions against major crude exporter Iran took effect on Tuesday.
Benchmark Brent crude oil futures shook off earlier weakness and were 0.33% higher at $73.99 a barrel. They had gained 0.75% on Monday after Opec sources said Saudi production had unexpectedly fallen in July.
On bond markets, borrowing costs for eurozone benchmark issuer Germany were pinned near their lowest levels in almost two weeks as the concern about global trade and turbulence in Italy continued to support demand for the least risky assets.
The softer dollar helped metals. Copper was up 0.5% at $6,161.50/ton after retreating more than 1% the previous day.
Gold, which is stuck near a one-year low, crawled 0.2% higher to $1,208.06/oz.