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Stocks rally on Chinese data boost, cautious trade optimism

Published 12/02/2019, 04:15 AM
Updated 12/02/2019, 04:15 AM
Stocks rally on Chinese data boost, cautious trade optimism

By Tommy Wilkes

LONDON (Reuters) - Stock markets rebounded on Monday as decent manufacturing data in China and renewed optimism over a trade deal eroded some of the jitters which emerged among investors last week.

The recovery in Europe followed gains in Asia, where share prices again approached record highs as investors stuck with bets that a trade deal between the United States and China is imminent, something which has fueled the rally in asset prices in recent weeks.

Last week's decision by U.S. President Donald Trump to sign legislation backing protesters in Hong Kong initially rattled markets, with worries it will unravel progress made in talks between Beijing and Washington.

But investors are nonetheless sticking with the broad view that a further escalation in the trade war can be avoided.

The MSCI world equity index (MIWD00000PUS), which tracks shares in 47 countries, edged up 0.1 percent and was close to last week's highs.

In Europe, the Euro STOXX 600 (STOXX) rose 0.26 percent while the German DAX (GDAXI) was 0.23 percent higher. French (FCHI) and British (FTSE) shares were also climbing.

Graphic: World FX rates in 2019 (http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html)

Chinese data did much to help the mood after the Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) index rose to 51.8 in November from 51.7 in the previous month, marking the fastest expansion since December 2016.

"What we had in China on the weekend with the two PMIs being above expectation is clearly a good sign in terms of making the global stabilization scenario more credible," said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners.

Savary noted that European manufacturing data had also posted an improvement, while euro zone inflation was higher than expected.

"Not only do we have signs of economic stabilization, we also have a decreased risk of deflation. I am not sure if that means markets should be hitting record highs, a lot of positive news has been priced in," he added.

In Germany, the surprise election of new leftist leaders to the Social Democrats (SPD) threatened the ruling coalition, sparking a jump in German bond yields as markets bet it would ease the path towards fiscal expansion.

The 10-year German bond yield was last up 5 basis points at -0.302 percent (DE10YT=RR), a two-week high. That helped spur a selloff across euro zone government bond markets.

U.S. Treasury yields were also notably higher, with the 10-year bond yield up by more than 7 basis points at a two-week high (US10YT=RR).

The buoyant mood among investors was also evident in the U.S. dollar, which has tended to perform well on hopes for a trade deal. It rallied to a six-month high of 109.73 yen , its strongest against the safe-haven currency since May.

Currency markets were largely quiet elsewhere, with the euro little changed at $1.1016 (EUR=EBS).

Investors have long thought that the United States will avoid imposing an additional 15 percent tariff on about $156 billion of Chinese products on Dec. 15 after signing a deal with China.

But the two countries have been so far unable to bridge the gap over existing tariffs on Chinese goods, with Beijing demanding the scrapping of them as a part of any trade deal.

"It looks a bit difficult for two countries' leaders to shake hands and sign a deal this month. What is more likely is to essentially kick the can, with China buying more U.S. farm products while the U.S. postpones its next tariffs," said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management.

"Markets will consider such an arrangement as a de facto deal whether they officially sign it or not," he said.

Oil prices recovered slightly after a big slump on Friday on record high U.S. crude production. Expectations that OPEC and its allies are set to extend existing oil output cuts when they meet this week helped drive the rebound.

Brent crude (LCOc1) futures rose 1.21 percent to $61.22 a barrel while U.S. West Texas Intermediate crude (CLc1) gained 0.85 percent to $56.02 per barrel.

Graphic: MSCI world stocks index (https://fingfx.thomsonreuters.com/gfx/mkt/12/9373/9285/world%20stocks.png)

Latest comments

I told you guys ... Trump has been backed into a corner. He needs a deal done soon or else pur market will experience a gigantic correction. Give everthing back from the start if the year. That means, we'll have two years with no gained. The rich will get richer and the poor will lose out again.
All this hope will turn down all the optimism. One day. Hope is a dangerous word.
With HOPE not the FACT !!!!
Why china wants to rolp back tariff if the economy not affected by trade war. The nations needs money to cover financial holes and local govt debts. The country is highly leveraged esp private companies.Notbsire if the Statesbwill agree roll back as she needs $ to pay for expenses and tariffs charged by China.Dont believe achinese as l9ng they sign tmand terms have to be as detailed as possible. Recall what Chinese g9vt has done last term, they tried to play aroind between terms vs timing.
China PMI is officially fake number, we wont see weak PMI as the mation wants to show not not affected by trade deal. Also PMI is a sentimemt index, mobody really indicated they are worried in this trade war time
Why traders have to hear this everyday?Hope and fear on trade deal. They report: PMI rose from 51.8 to 51.8, Output and new orders are both strong??? Do you believe that?
trade deal again lol! how many time they gonna use this to pump the markets
bailouts for billionaires. More coming Soon...
this is the same Reuters that reported earlier China wants tariffs already in place to be rolled back in order to commit to a deal
Groundhog day
if china is expanding fine with tariff then shouldn't it be noted that they can wait for a deal, thus meaning less of a chance of trade deal... market can't have it both ways. lol
yeah, we trust completely all the numbers coming out of china and the deal is almost done. china is not insisting on tariffs to be dropped before the deal can be signed. so all is good
too greedy
where is the hope?
Gotta drop this narrative, markets are up because of global monetary policy.
They're complicit in the scheme. They'll never stop.
Yes n try to confuse U at the same time
hopes, hopes, hopes that word.
Translation: investors hear only what they want to, then they demand a bailout when things don't go their way.
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