Central banks are supportive as US-China trade hopes extend equity surge
US President Donald Trump says negotiations are going well and suggested he is open to extending the deadline to complete them beyond March 1
London — World stocks hit a four-month high on Wednesday on hopes of progress in trade talks between the US and China, with a dovish backdrop at major central banks also helping push markets back into the black.
US President Donald Trump said negotiations with China are going well and suggested he is open to extending the deadline to complete them beyond March 1.
Up to now, it was assumed US tariffs on $200bn worth of Chinese imports will rise to 25% from 10% if no trade deal is reached by then.
Asian shares soared on Trump’s comment, and European stock indices also strengthened, with a pan-European index gaining 0.3%, pushing the MSCI world equity index, which tracks shares in 47 countries, to a four-month high.
US stock futures suggested that Wall Street would hold on to Tuesday’s strong gains, and open about flat.
“I’d say the market is very much pricing in a deal at this stage, and there’s some merit to this as I don’t think you engage in such a solid period of talks over a number of weeks unless you feel you are getting somewhere,” said Craig Erlam, chief market analyst at Oanda, an FX brokerage.
“The talk of an extension suggests Trump is positive about the direction of travel.”
He added, however, that the market remains vulnerable to any further setbacks.
While hopes for a trade deal between the world’s two largest economies are seen as the primary driver for world stocks, dovish central bank messages are also playing a part.
New York Fed president John Williams said on Tuesday he is comfortable with the level US interest rates are at and that he sees no need to raise them again unless economic growth or inflation shifts to an unexpectedly higher gear.
Investors are also looking to the release on Wednesday of minutes from the Federal Reserve’s January meeting, at which policymakers effectively signalled no further rate hikes and possible tweaks to its balance sheet normalisation.
In Europe, expectations have been growing that the European Central Bank will restart a programme to provide long-term cheap loans to banks to boost a faltering economy, while the Bank of Japan has flagged its readiness to ease further.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose as much as 1.1% to mark its highest levels since October 2.
Hong Kong’s Hang Seng gained as much as 1.3% to six-month highs, while Korea’s Kospi and Taiwan’s index recovered to levels last seen in early October. Japan’s Nikkei added 0.6% to two-month highs.
On currency markets, the dollar steadied against a basket of major currencies, after suffering its biggest one-day loss of the month on Tuesday. It had also recorded big slides against the euro and sterling.
The greenback strengthened 0.2% against the yen after Japan recorded its biggest annual drop in exports in January for more than two years, and on recent dovish Bank of Japan signals.
Markets were also focused on news flow on the Brexit front, with sterling holding most of its gains following a 1% surge on Tuesday as British Prime Minister Theresa May headed to Brussels to try push negotiations forward.
The yuan rose as much as 0.6% against the dollar, its biggest intraday gain in more than a month, after Bloomberg reported on Tuesday that the US is seeking to secure a pledge from China that it will not devalue the currency as part of a trade deal.
Oil prices came off 2019 highs, hit by US production and expectations of an economic slowdown.
International Brent crude futures dropped 0.65% at $66.02 per barrel, having hit a three-month high of $66.83 per barrel earlier this week, supported by Opec-led supply cuts and US sanctions on Iran and Venezuela.