Picture: 123RF/andriano
Picture: 123RF/andriano

London — World share and commodity prices rose on Monday as hints of progress on the US-China trade stand-off provided a glimmer of optimism in what has been a punishing 2018 for markets globally.

Europe’s STOXX 600 followed Asia’s lead to push 0.4% higher and Wall Street futures were up 1% as traders tried to overcome the worst year for equities since the 2008 financial crisis.

Sentiment had improved when US President Donald Trump tweeted that he held a “very good call” with China’s President Xi Jinping on Saturday to discuss trade and claimed “big progress” was being made.

The Wall Street Journal reported the White House was pressing China for more details of how it might increase US exports and loosen regulations that stifle US companies there. Chinese state media was more reserved, saying Xi hoped the negotiating teams could meet each other half-way and reach an agreement that was mutually beneficial.

Economic data out of China was also unhelpfully mixed, with manufacturing activity contracting for the first time in two years, although the service sector improved.

MSCI’s broadest index of Asia-Pacific shares managed a 0.6%  gain, but it was still down 16% for the year. A sub-index of top Chinese companies lost more than a quarter of its value.

The story was much the same across the globe, with most major stock indices deep in the red.

Paris made a respectable 1% on the day, but London’s FTSE 100 fell flat again. They are down 11% and 12% for the year, respectively. Germany’s export-heavy DAX 30 has had it worse, losing more than 18% of its value.

E-Mini futures for Wall Street’s S&P 500 had gained 0.8% ahead of US trading. The index is off almost 10% for December, its worst month since February 2009, down 15% for the quarter and 7%t for the year.

“Simply looking at the markets would suggest that the global economy is headed into recession,” said Robert Michele, chief investment officer and head of fixed income at JP Morgan Asset Management.

“However, while we agree the global economy is in a growth slowdown, we don’t see an impending recession,” he said, in part because the US Federal Reserve could provide a policy cushion.  “Already, commentary out of the Fed suggests that it is nearing the end of a three-year journey to normalise policy,” Michele said.

No more hikes 

Indeed, Fed fund futures have now largely priced out any rate increase for next year and now imply a quarter-point cut by mid-2020. The treasury market clearly thinks the Fed is done. Yields on two-year debt have fallen to just 2.52% from a peak of 2.977%  in November.

The $15.5-trillion market is heading for its biggest monthly rally in two-and-a-half years, according to an index compiled by Bloomberg and Barclays.

European bond markets were closed on Monday, but the drop in US yields has undermined the dollar in recent weeks. Against a basket of currencies, it was on track to end December with a loss of 0.8% but remained up on the year.

The dollar has also had a tough month against the yen. It lost 2.8% this month and was last trading at just under 110. However, 2018 was mostly stable for the pair, trading all year in a range of 104.55 to 114.54.

The euro was on track to end the month higher at $1.1450 but nursing losses of almost 5% over the year. Sterling made a last push to $1.28, but Brexit woes have cost it more than 5%.

That was trivial compared with the drop in oil prices — Brent crude is down almost 40% since its peak in October. It was last up $1.22 at $54.40 a barrel but down 20% for the year. US crude futures nudged up 96c to $46.29.

Gold rallied almost 5% in the past month to stand at $1,283 an ounce.

Copper, aluminium, zinc and nickel, however, were all down 17% to 26% this year. The industrial metals are sensitive to China’s economy, which consumes almost half the global supply.

Said INTL FCStone analyst Edward Meir, “The supply side is tight, but my fear is that with demand weakening it will offset all these supply concerns so we could see inventories begin to pick up.”