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Stocks bask in 'very good' trade talks, Brexit deal hopes

Stock MarketsOct 11, 2019 07:45AM ET
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© Reuters. FILE PHOTO: The German share price index DAX graph at the stock exchange in Frankfurt

By Tom Wilson

LONDON (Reuters) - World shares on Friday basked in optimism over signs of a detente in the U.S.-China trade war and hopes that Britain was moving closer to a smooth exit from the European Union.

The MSCI world equity index (MIWD00000PUS), which tracks shares in 47 countries, gained 0.5% to head towards its first weekly rise in four weeks. European shares led the charge, with the broad Euro STOXX 600 (STOXX) jumping 1.1% and heading towards its strongest day since late August.

Frankfurt's main index (GDAXI), seen as sensitive to the trade war because of its export-oriented stocks, jumped 1.7% and was on course for its biggest daily gain since June.

A rally in Asian shares had earlier set the positive tone, with an index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) climbing 1.4%. And the positive mood was set to spread to Wall Street, too, where futures gauges added about 1%.

The improvement in hunger for riskier bets came after U.S. President Donald Trump on Thursday called the first day of trade talks with China in over two months "very, very good."

The talks between U.S. and Chinese negotiators fed hopes that the two sides could dial down the 15-month trade war that has upset financial markets and supply chains across the world, and delay a U.S. tariff hike scheduled for next week.

Trump reiterated plans to meet China's Vice Premier Liu He on Friday at the White House.

Expectations of progress on Thursday had pushed up U.S. markets, with Wall Street (DJI) (SPX) gaining around 0.6%.

Yet investors said markets were hoping for, at best, a deal limited in scope, and they noted that sunny rhetoric had in the past failed to translate into more meaningful moves.

"I would caution that we have been here before, where we have seen positive talk," said Mike Bell, global market strategist at J.P. Morgan Asset Management.

"It's possible they will be able to do a smaller deal around tariffs, where there is some room for movement."

Hopes of progress in the trade war buoyed riskier currencies and pinned down the dollar. The Chinese yuan traded at 7.0932 per dollar, its strongest since Sept. 23.

Against a basket of currencies the greenback was a touch softer at 98.655 <.DXY.>

POUND PINBALLS

Signs of progress in Brexit, the other long-running geopolitical saga stressing out the markets, also emboldened investors.

After meeting British Prime Minister Boris Johnson for talks, Irish Prime Minister Leo Varadkar said on Thursday that a deal to let Britain leave the European Union in an orderly fashion could be sealed by the end of the month.

Varadkar called the talks "constructive," while the two leaders said in a joint statement that they could "see a pathway to a possible deal". Sterling jumped 2%.

But it remained unclear what the pair agreed on, and skittishness over what comes next for Brexit reigned among currency traders on Friday.

The British pound pinballed, slumping nearly a cent in a matter of minutes after top EU official Donald Tusk said "time is practically up" for Britain to reach a Brexit deal, before recovering much of its lost ground as Tusk's remarks continued.

It was last up 1.1% at $1.2437, after its biggest two-day jump since June 2016. It also jumped 2.5% versus the euro (EURGBP=D3).

(GRAPHIC - Sterling loses a cent in two minutes before recovering: https://fingfx.thomsonreuters.com/gfx/mkt/12/7243/7174/gbp.png)

Still, with Britain due to leave the world's biggest trading bloc on Oct. 31, market players reiterated that the fate of Brexit is still in the balance.

"We are moving to a glimmer of hope, rather than strong expectation that things will get done," Tim Drayson, head of economics at Legal & General Investment Management.

Yet Drayson said that any deal struck between Dublin and London would then face the hurdle of the British parliament, even after securing agreement from the European Union.

"I think the odds are that we don't reach an agreement, but I'm not expecting a crash out on October 31."

Irish government bonds rallied, outperforming their euro zone peers, after Varadkar's comments. Stocks in Dublin (ISEQ) jumped 3%, to hit their highest in 3-1/2 months.

"We still think that markets are probably underpricing the likelihood of a hard Brexit scenario," said Salman Baig, a cross-asset investment manager at Unigestion.

In commodities, oil prices rose after Iranian news agencies said a state-owned oil tanker had been hit by missiles in the Red Sea near Saudi Arabia, raising the prospect of supply disruptions from a crucial producing region.

Global benchmark Brent crude (LCOc1) was up around 1.5% at $60.01 per barrel.

For Reuters Live Markets blog on European and UK stock markets, please click on: [LIVE/]

Stocks bask in 'very good' trade talks, Brexit deal hopes
 

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Comments (8)
Max German
MaxiGE Oct 11, 2019 6:25AM ET
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2y already we can wait few more years why not
Cynthia Bwar
Cynthia Bwar Oct 11, 2019 5:09AM ET
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Pls bullrish again!
bd bd
bd bd Oct 11, 2019 4:54AM ET
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A new cover on a book will not change the story. We have read this story before.
Chris Sundo
Chris Sundo Oct 11, 2019 3:09AM ET
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We've all been waiting for this moment, Congrats! Finally, Trump is making solid agreements too solid to fail. It's about time.
Krl Marx
Krl Marx Oct 11, 2019 3:09AM ET
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Why do you think so?
Chris Sundo
Chris Sundo Oct 11, 2019 2:39AM ET
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The biggest bubbles we had since Trump? Er: .  ----- 3! BitCoin, Marijuana, and .. Trump.
brad merck
brad merck Oct 11, 2019 12:09AM ET
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fake news , tomorrow trump , colocate more tariffc
eddie smith
eddie smith Oct 11, 2019 12:00AM ET
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omg trade talks really? here let me predict tomorrows headline "market [up/down] due to trade talks"
Andrew Hook
Andrew Hook Oct 11, 2019 12:00AM ET
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yes so true. market [down] they failled to find an agreement or grump tweeting/insulting china
eddie smith
eddie smith Oct 11, 2019 12:00AM ET
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Andrew Hook china deserves to be insulted
Andrew Hook
Andrew Hook Oct 11, 2019 12:00AM ET
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eddie smith you dum/b
Brent He
Brent He Oct 10, 2019 9:33PM ET
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there couldnt be a more basic article than this. really? this sounds like a second grader wrote it. the expectation was for a complete deal that dealt with IP theft and subsidies to state owned companies
Andrew Hook
Andrew Hook Oct 10, 2019 9:33PM ET
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We all thought that was the plan according orange face, but lowering expectations will make the deal done lol
 
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