Picture: REUTERS
Picture: REUTERS

London — A global equity rally fueled by a dramatic surge on Wall Street ran out of steam on Thursday, setting US shares up for a weak opening after a fall in Chinese industrial profits offered a reminder of the pressures on the world economy.

Still, world stocks stayed off near two-year lows, lifted by Wednesday’s 1,000 point-plus surge on the US Dow Jones index, which was partly triggered by the strongest holiday sales in years.

Stocks in Asia and Europe initially took their cue from this rally, pushing the MSCI world index, which tracks shares in 47 countries, 0.4% higher, adding to a 2.3% spike on Wednesday, when the previous session, rising off a 22-month low, hit on Christmas Eve.

But the gains halved by 11.30am GMT as a pan-European equity index fell 1.1% after a strong open and export-reliant German shares lost 2%. Equity futures for the Dow Jones index fell 1.5%  while Nasdaq andthe  S&P 500 appeared set for even weaker openings.

“Yesterday was a blow-out day for US equity markets that triggered optimism that this could be a key reversal day, but the upward momentum has not really followed through into Asia and Europe,” said Lee Hardman, an analyst at MUFG in London. “One reason is that maybe the sharp move higher was driven by year-end rebalancing, which exaggerated the scale of the rebound, and now we have reverted to the trend that has been in place most of this month.”

While Japanese and Australian shares rose strongly, markets in mainland China as well as Hong Kong closed 0.4% weaker after data showed earnings at China’s industrial firms dropped in November for the first time in nearly three years.

A Reuters report added to the gloom around the world’s second-biggest economy, saying the White House was considering barring US firms from buying telecoms equipment from China’s Huawei and ZTE. This overshadowed positive noises from the US government on trade talks with Beijing, its efforts to temper the White House’s recent broadsides against the Federal Reserve, and a Mastercard report that US holiday shopping sales had risen the most in six years in 2018.

“So far, we don’t see a shift in fundamentals. Trade tensions between the U.S. and China remain the biggest unknown factor for 2019,” said Hussein Sayed, a strategist at online brokerage FXTM.

There were also renewed concerns in Italy, where troubled lender Banca Carige was denied a cash-call by its largest shareholder, pushing its shares down 12.5%.

Oil is not well 

The concerns over a faltering global economy and signs of a crude oil glut pressured oil prices, sending Brent futures 1.7% lower to $53.5 a barrel and partly reversing Wednesdays 8% jump.

That rise was triggered by oil cartel Opec and its allies, including Russia, agreeing to limit output by 1.2-million barrels per day (bpd).

US treasury yields also reversed direction after rising sharply on Wednesday, dropping three basis points to 2.765%.

Another safe-haven, gold, was up 0.4%, remaining just below a six-month peak hit earlier this week.

Investors also bought yen, pushing the dollar 0.4% lower versus the Japanese currency and forcing it to cede some of its 1%  overnight rise. Against a basket of currencies it was down 0.3%. Said MUFG’s Hardman, “We have started to see the yen regain its place as the safe haven of choice.”