Picture: 123RF/SOLAR SEVEN
Picture: 123RF/SOLAR SEVEN

London — Europe’s share markets hit a more than four-year peak and bond yields shuffled higher on Thursday, as Beijing signaled that a phase 1 trade deal with the US was close to being sealed.

Asia had been quiet overnight but things sparked just before Europe opened when China’s commerce ministry said the world’s two economic giants were working on a deal that would roll back trade tariffs in different stages.

Cue optimism. The pan-European Stoxx 600 index rose 0.4% to its highest since July 2015 led by the export-heavy DAX 30 in Frankfurt, despite worse-than-expected German industrial output data.

European government bond yields — which move inversely to the price — rose too. Benchmark bund yields were heading towards their highest in more than three months, while the dollar took back ground from the safe-haven yen in the currency markets.

“Everything is moving together for now on this trade-deal news,” said Saxo Bank’s head of FX strategy John Hardy. “The question is, how much was already baked in and can we really see more specifics?” 

Among the top gainers across European sub-sectors were carmakers and miners, while defensive plays, such as telecoms and utilities, fell, which all pointed to higher risk appetite.

E-Mini futures for the S&P 500, which has already set a new record high this week, were also a solid 0.5% better off.

Asia, in contrast, had barely budged. MSCI’s broadest index of Asia-Pacific shares excluding Japan dipped a slight 0.2%, just off a six-month high hit earlier in the week.

Japan’s Nikkei dithered either side of flat in very quiet trade, having touched a 13-month top on Wednesday. South Korean stocks stalled after hitting their highest since May, while Shanghai blue chips eked out a 0.2% rise.

Reuters reported on Wednesday that a meeting between US President Donald Trump and Chinese President Xi Jinping to sign the interim trade deal could be delayed until December as discussions continue over terms and venue. Among various suggestions was to sign a deal after a scheduled Nato meeting in London in early December.

“One could take the view that by not committing to meet the original deadline it gives more time for a somewhat more comprehensive agreement to be thrashed out,” said Ray Attrill, head of forex strategy at National Australia Bank.

The overnight pause in the risk rally helped US bonds recoup a little of their recent losses. Yields on benchmark US 10-year notes fell back to 1.84% from a two-month top of 1.87%.

That kept the dollar in check; it was at ¥109.00 from a weekly high of ¥109.24 and was a smidgen lower on a basket of currencies at 97.965. The euro was trying to sustain a bounce at $1.1079, perilously close to chart support at $1.1060.

Spot gold was little changed at $1,490.38 an ounce and well within recent tight trading ranges.

Oil prices clawed higher after taking a hit from a surprisingly large build in US crude inventories. US crude was 57c higher at $56.92 a barrel, while Brent crude made 50c to $62.23.

Reuters