Global equities benefit from optimism around trade talks
London — Shares rose around the world on Friday as expectations grew that the US and China will open new trade talks, while an interest rate hike in Turkey supported the lira and global risk appetite.
The MSCI All-Country World index, which tracks shares in 47 countries, was up 0.5% on the day after the start of trade in Europe.
Led by technology and autos stocks, the pan-European Stoxx 600 index rose 0.5%, set for its best weekly gains in seven weeks.
Tech stocks rose 0.7% after Apple gained on Wall Street following Europe’s close.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.2%. Australian shares were up 0.6%, Seoul’s Kospi rose 1.4% and Hong Kong’s Hang Seng gained 1%. Japan’s Nikkei stock index was 1.2% higher.
Those rises followed gains on Wall Street on Thursday, with the Dow Jones Industrial Average ending 0.57% higher, the S&P 500 gaining 0.53% and the Nasdaq Composite adding 0.75%. Chinese shares fell, despite a short-lived bump from data that showed forecast-topping industrial output and retail sales data for August.
Other data showed real estate investment in the country fell in August, raising concern that a cooling property market could increase risks for China’s economic outlook as the trade environment worsens.
China’s benchmark Shanghai Composite index was down 0.2% and the blue-chip CSI300 index rose 0.2%.
Chinese officials welcomed an invitation from treasury secretary Steven Mnuchin for new talks. But US President Donald Trump tempered market expectations, tweeting on Thursday that the US is "under no pressure to make a deal with China".
The Trump administration is readying a final list of $200bn worth of Chinese imports that it plans to levy tariffs on in coming days. That move would mark an escalation in the trade war and could significantly slow global growth.
Analysts at Capital Economics noted that Mnuchin had struck a deal with China in May that was scuppered days later by Trump.
"As a result, he has little credibility with Chinese policymakers," they said.
On Friday, the state-run English-language newspaper China Daily said in an editorial that China would not "surrender" to US demands and "will not hesitate to take countermeasures against US tariffs to safeguard China’s interests".
Uncertainty around the global outlook for trade was highlighted by the European Central Bank (ECB), which on Thursday kept policy unchanged as expected and warned that risks from protectionism were growing.
A sharp interest rate increase by Turkey’s central bank to support a tumbling lira boosted risk appetite in emerging markets. The bank hiked its benchmark interest rate by 625 basis points, to 24%. Currency crises in both Turkey and Argentina have stoked fears of contagion over the past several weeks, hammering emerging market assets from Indonesia to India to SA.
After rising as high as 6.1442 to the dollar, the lira eased slightly to 6.0768 on Friday.
Turkish lira implied volatility gauges fell to their lowest levels in more than a month on Friday, as sentiment continued to improve.
"The bold decision [by Turkey’s central bank] reduces the risk that a full-scale financial crisis may unfold," wrote analysts at Rabobank in a note to clients.
"That said, it’s only the first step and we remain of the view that a rate hike on its own may not prove sufficient to lead to a sustainable recovery in the lira. The central bank’s efforts must be accompanied by an implementation of constructive macro prudential policies by the administration."
The euro hit a two-week high, extending Thursday’s gains after comments from ECB president Mario Draghi that focused on healthy domestic fundamentals, including rapid growth in employment and a rise in wages.
The pound reached a six-week high of $1.3139, up 0.3% and set for its second biggest weekly rise of 2018.
The dollar eased 0.1% against the yen to ¥111.82.
US crude was 0.3% higher at $69.12 a barrel as Hurricane Florence approached the US east coast. Brent crude rose 0.6% to $78.62 a barrel.
Spot gold gained over half a% to $1208.05/oz.