Picture: ISTOCK
Picture: ISTOCK

London — European and Asian shares hovered near four-month highs on Tuesday as investors took heart from some progress in China-US trade talks, while the yen dribbled lower as Japan's central bank said it could ease policy again.

World markets were struggling a bit for direction after a slow but buoyant start to the week and with a new round of China-US trade talks, this time in Washington, being held later.

Stocks traders were largely happy to keep their powder dry.

Europe's main bourses spent most of their first hour dithering before eventually heading lower after a subdued Asian session had seen most markets there barely get out of first gear.

Currency dealers had at least a bit more to keep them busy.

The yen had slipped to ¥110.70 per dollar after Japan's central bank governor had said it could redeploy stimulus if the yen's relative strength this year hurt the economy and inflation prospects.

The euro was just above $1.13 after more talk of ultra-cheap ECB bank loans, while Sweden's krona dived to a two-year low against the dollar as inflation data came in weak just two months after a rise in interest rates.

"Stokkie [dollar vs Swedish krona] is off to the races," said TD Securities' head of global research, Richard Kelly.

"You had especially weak inflation and as you see [from the yen and euro] it comes against this backdrop of central banks becoming more dovish again," although he also said that bond markets has seen far less reaction to the Swedish data.

Most other currencies were stuck in familiar ranges.

Sterling was flat at $1.2923, with the ongoing Brexit talks between Britain and the EU overpowering strong employment and wage data, while the Australian dollar held at $0.7112.

The precious metals market was more animated, with palladium surging to a record high of $1,471.0 per ounce as stricter emissions standards are seen increasing demand for the auto catalyst metal.

Gold held at about $1,323.66 per ounce after earlier rising to a near 10-month high of $1,327.64 too.

Oil prices were mixed, with Brent futures off 29 US cents at $66.21, although that was not far from Monday's $66.83, which was the highest since mid-November. US crude futures added 21c to $55.8.

Walmart

E-mini futures for the S&P 500 and the Dow were a shade weaker ahead of a busy day of US earnings, including from the world's biggest retailer Walmart, which is expected to report a 1.8% increase in revenue.

In Asia, Japan's Nikkei nudged up 0.1% after holding flat for most of the day. Australian shares climbed 0.3% to a four-and-a-half month peak, after gaining more than 8% so far in 2019, partly on expectations the central bank could ease policy to temper pressure on growth.

Chinese shares slipped into the red though after surging in the previous session, with the blue-chip index off 0.2%.

HSBC — Europe's biggest bank — saw its shares fall 3% as it missed forecasts due to slowing growth in its two home markets of China and Britain.

The results spoke to a wider problem for European banks, which are struggling to return to growth after a decade of post-crisis restructuring due to a worsening global economic outlook.

Trade talks were also dominating headlines again with a new round of negotiations between the US and China expected in Washington on Tuesday, and follow-up sessions at a higher level later in the week.

Reports of progress in the talks have kindled hopes among investors that the two countries can reach a compromise in their trade war by a March 1 deadline, although few details from the talks have emerged.

President Donald Trump said last week he might extend the March 1 deadline, which would stop an immediate increase in tariffs on $200bn worth of Chinese imports to 25% from 10%.

Reflecting changing sentiment, Chinese shares have risen rapidly so far this month, with MSCI's China A shares index up 6.5%, by far the best performance among major markets despite China's weakening economy.

Additionally, investors are now seen returning to riskier asset markets after the US Federal Reserve signalled earlier in 2019 it could halt rate hikes in light of US economic softness.

"In the last week, it seems like global central banks have started a possible process of monetary easing," Bank of America-Merrill Lynch strategist Ajay Singh Kapur said in a note.

"If so, this would be very positive for Asia/EM stocks," Kapur added. 

Reuters