Picture: ISTOCK
Picture: ISTOCK

London — Global shares were having their best day in nearly a month on Friday as European and Asian markets recovered from a brutal selloff that still left them set for their worst week since February.

After a partial recovery in Asian shares overnight, European stocks opened higher, with the pan-European STOXX 600 up 0.9% on the day, Germany’s DAX 30 up 1.1% while Britain’s FTSE 100 gained 0.4%.

S&P stock futures pointed to a rebound in US stocks later in the day, while the VIX volatility index climbed down from an eight-month high. The MSCI All-Country World index, which tracks shares in 47 countries, was up 0.5% on the day.

“Some traders are cautiously buying back into the market today, but the underlying issues which brought about the selloff are still relevant,” said David Madden, markets analyst at CMC Markets in London.

The biggest market shake-out since February has been blamed on a series of factors, including worries about the impact of a China-US trade war, a spike in US bond yields this week and caution ahead of earnings season.

Trade figures from China on Friday showed China’s trade surplus with the US hit a record high in September, providing a likely source of contention with U..President Donald Trump over trade policies and the currency. The data showed solid expansion in China’s overall imports and exports, suggesting little damage from the tit-for-tat tariffs with the US.

This added to bullish sentiment on Friday, Madden said, also noting the decision by US treasury staff to refrain from labeling China a currency manipulator as a positive for stocks.

Shanghai shares bounced 0.8%, recouping earlier losses of 1.8% as cheap valuations drew bargain hunters. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 2.15%, the biggest in more than two years. But the bounce came after the index fell 3.6% on Thursday to hit a one-and-a-half-year low. For the week, it is still on track for a loss of 3.6%. Japan’s Nikkei average rose 0.5 percent. 

Worst performers

So far this week, Chinese and US shares are among the worst performers, a sign investor worries about the trade war are growing. MSCI’s US index has shed 5.5%, compared with a 4.9%  fall for MSCI’s gauge of stock performance in 47 countries. China A shares are still down 8.7%.

“We’re still left with the sense that there has been a significant shift that markets now have to take stock of,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.

Gold, which had risen to a 10-week high on the back of the selloff, fell 0.5% on Friday, down to $1.217.31 an ounce.

The yield on 10-year US notes edged up in Europe to 3.170%, reversing earlier falls on flight-to-quality bids. It is still off its seven-year high of 3.261% touched on Tuesday, but a further rise in the US borrowing costs could hurt risk sentiment.

“Asian stocks appeared to have stabilised, but, ultimately, where US bond yields will settle down will be key,” said Teppei Ino, senior analyst at MUFG Bank.

Adding confusion for investors, Trump launched a second day of criticism of the US Federal Reserve on Thursday, calling its interest rate increases a “ridiculous” policy. While this does not appear to have shaken investor confidence in the Fed’s independence, some investors suspect expectations on future rate hikes could be undermined if Trump raises his threats levels.

“I doubt Trump will tolerate further rise in US rates ahead of US mid-term elections. I believe the rise in US yields and the dollar’s rally are coming to a turning point,” said Naoki Iwami, fixed income chief investment officer at Whiz Partners in Tokyo.

The dollar lacked momentum against a basket of major currencies as US bond yields stayed off recent peaks. The index, which measures the greenback against a basket of currencies, traded within a tight range, last at 95.009.

The euro was 0.1% lower at $1.1582, after a gain of 0.65% on Thursday. But the yen eased to ¥112.32 to the dollar after hitting a three-week high of ¥111.83 on Thursday.

The Chinese yuan weakened 0.5%, giving up some of the gains it had made the previous day.

Oil prices bounced back on Friday. Brent crude futures rose 1.1% to $81.14 a barrel, holding off a four-year high of $86.74 touched on October 3.

Reuters