Global stocks edge higher but US-China trade deal caps gains
All eyes are on Brexit ahead of an EU summit later in the week with sterling buoyed by some optimism that a deal can be struck
London — Global stocks edged higher on Tuesday, yet safe havens were still in play as markets tried to balance fading optimism over the latest China-US trade truce with the likelihood of a Brexit deal byThursday’s EU summit.
MSCI’s gauge of stocks across the world gained 0.2% with European stocks climbing briefly to a two-week high after comments from the EU’s chief Brexit negotiator that a deal with Britain over the terms of their divorce is still possible this week.
The pan-European Stoxx 600 added 0.4% with France’s CAC 40 and Germany’s export-oriented DAX 30 both rising, while Britain’s FTSE slipped 0.3% as sterling rose against the dollar and the euro, reflecting the cautious optimism about talks between Britain and the EU.
Yet capping broader gains in equities was a perceived lack of progress coming out of US-China trade negotiations. Reports of a “Phase 1” trade deal between the US and China last week had earlier cheered markets, but the dearth of details around the agreement has since curbed this enthusiasm with oil prices extending declines, Chinese stocks weaker, and the safe-haven yen holding gains against the dollar.
“Not enough was achieved to meaningfully alter the fundamental global economic outlook,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “Global growth is still slowing and is below trend ... There is still scope for earnings disappointment and the remaining uncertainty from trade tensions means business investment is unlikely to improve markedly.”
Asian shares had nudged slightly higher while Japan’s Nikkei stock index was up 1.9%.
US stock futures rose 0.2% after the S&P 500 ended 0.14% lower on Monday with investors bracing for earnings from financial heavyweights.
First numbers gave a mixed picture. JPMorgan beat quarterly profit estimates by a wide margin thanks to strong bond trading, underwriting and home lending revenue, while Goldman Sachs reported a slump in profit on lower fees and weakness in underwriting.
Citi, Wells Fargo and BlackRock are also reporting results.
Possible but difficult
However,the focus firmly remained on Europe where officials from Britain and the EU will meet at a make-or-break summit on Thursday and Friday that will determine whether Britain is headed for a deal to leave the bloc on October 31, a disorderly no-deal exit, or a delay.
The main sticking point remains the border between EU member Ireland and the British province of Northern Ireland. Some EU politicians have expressed guarded optimism that a deal can be reached. However, diplomats from the EU have indicated they are pessimistic about British Prime Minister Boris Johnson’s proposed solution for the border and want more concessions.
Those concerns did little to quash market optimism for now, with Britain expected to make new proposals on Tuesday.
Eurozone bond yields slipped. Germany’s 10-year yield was down one basis point to -0.47%, hovering just below two-and-a-half-month highs, also helped by German investor sentiment worsened less than expected.
In the currency markets, the dollar gained for a second consecutive day.
Optimism over a possible Brexit deal lifted sterling by as much as 0.7% to the dollar in early trading and it approached a three-month high of $1.2708 before giving away some gains. The pounds also climbed to a five-month high against the euro.
The yen, often considered a safe haven in times of economic uncertainty, held steady at ¥108.33 against the dollar.
Markets were still considering the perceived lack of progress in resolving a prolonged trade row between the US and China. The US agreed to delay an October 15 increase in tariffs on Chinese goods while Beijing said it would buy as much as $50bn of US agricultural products after tense negotiations last week.
However, Washington has left in place tariffs on hundreds of billions of dollars’ worth of Chinese goods.
Trade experts and China market analysts say the chances are high that Washington and Beijing will fail to agree on any specifics — as happened in May — in time for a mid-November meeting between US President Donald Trump and Chinese President Xi Jinping.
“We have the same agenda in front of us as we’ve had most of this year — which is trade war, Brexit, central bank policy, geopolitical risks,” said Peter Lowman, chief investment officer at wealth manager Investment Quorum. “All that has been simmering all year and it’s continuing as we move through the rest of the year.”
Chinese data also added to the woes. Latest numbers showed that China factory gate prices declined at the fastest pace in more than three years in September. That followed customs data on Monday that showed Chinese imports had contracted for a fifth straight month.
Concerns over the health of the global economy weighed heavily on oil prices, with US crude and Brent crude both falling about 0.6% to $53.18 and $59.04 a barrel, respectively.
By early last week, hedge funds had become the most bearish towards petroleum prices since the start of the year, according to an analysis of position records published by the US commodity futures trading commission and ICE Futures Europe.