A view of the exterior of the Nasdaq market in Manhattan, New York. Picture: REUTERS
A view of the exterior of the Nasdaq market in Manhattan, New York. Picture: REUTERS

London — Hopes of progress in China-US trade talks and expectations of policy stimulus from central banks lifted world stocks to two-and-a-half-month highs on Monday, though European gains were dampened by concerns over the car sector's outlook.

MSCI's all-country world index rose 0.3% after Japan's Nikkei closed up 1.8% at its highest level of 2019 and MSCI's index of Asian equities rose almost 1%. Shanghai blue chips surged 2.7% to their highest finish in more than six months.

Trade negotiations between the US and China will resume this week, with US President Donald Trump saying he may extend a March 1 deadline for a deal. Both sides reported progress at last week's talks in Beijing.

But the mood was more subdued in Europe, where a pan-European equity index inched to new four-month high but gains were capped by the vehicle sector, which was hit by data showing Chinese car sales fell 16% in January, their seventh straight month of decline.

The vehicles index, a bellwether for Europe's economy, fell 0.9%, also pressured by fears that a US commerce department report to Trump could unleash steep tariffs on imported cars and auto parts. German shares fell 0.3%.

Trump has 90 days to decide whether to act upon the recommendations.

"The optimism on trade has been strong, but the underlying economic data has been a lot of weaker — so you have some push and pull factors," said David Vickers, senior portfolio manager at Russell Investments, adding much focus was now on flash PMI data due out later in the week.

"As the bounce back from the December lows fades ... the fundamentals now reassert itself," Vickers added.

Recent runs of soft economic data have fuelled expectations that the world's most powerful central banks could deliver on reflationary policies and provide support for markets.

The need for stimulus was highlighted by data showing a sharp slide in Singapore exports and a big drop in foreign orders for Japanese machinery goods.

Sluggish investment

Beijing is already taking action with China's banks making the most new loans on record in January in an attempt to jumpstart sluggish investment.

E-Mini futures for the S&P 500 were flat as trade was thinned by a holiday in U.S markets. The Dow and the Nasdaq had boasted their eighth consecutive weekly gains on wagers the US and China would hammer out an agreement resolving their protracted trade war.

Minutes of the Federal Reserve's last policy meeting are due on Wednesday and should provide more guidance on the likelihood of rate hikes this year. There is also talk the bank will keep a much larger balance sheet than previously planned.

“Given the range of speakers since the January meeting who support ‘patience’, the Fed minutes should reiterate a dovish message overall,” analysts at TD Securities said in a note.

The dollar was steady on the yen at ¥110.57, having backed away from a two-month top of ¥111.12.

Sterling drifted higher after registering three consecutive weeks of losses as investors waited for the outcome of Brexit talks between Britain and the EU.

British Prime Minister Theresa May plans to speak to every EU leader and the European Commission chief to seek changes to her EU withdrawal agreement, after another defeat from her own legislators last week.

All of that left the dollar a shade lower at 96.835 on a basket of currencies and away from last week's top of 97.368.

On commodity markets, oil prices reached their highest for the year, buoyed by Opec-led supply cuts and US sanctions on Iran and Venezuela. Brent crude futures rose 0.25% percent to $66.30.

Reuters