Cautious optimism about US-China trade talks lifts shares

New York — A gauge of global equity markets rose on Monday on hopes the US-China trade dispute would cool at talks this week, while Turkey’s lira fell anew after cuts to the country’s credit ratings and shots were fired outside the US embassy in Ankara.

Wall Street was mixed but broad-based gains in Europe and Asia lifted the MSCI’s all-country world index, which tracks shares in 47 countries. The gauge has recouped last week’s losses sparked by the lira’s plunge, but not the losses of the prior week when the Turkish currency began its fall.

Mid-level US and Chinese officials are expected to meet later this week in Washington to discuss their trade dispute. But it is unclear whether the talks will have any effect on the implementation of US tariffs and retaliation by China.

“Traders are cautiously optimistic, but just because the meeting has been lined up doesn’t mean anything will come of it,” CMC Markets chief markets analyst David Madden said.

“Some traders view the [recent] weakness in the Chinese stock market and currency as a sign that Beijing will be more accommodating when it comes to negotiations,” he said.

Six days of public hearings on the proposed US duties of up to 25% were to start on Monday in Washington as part of the US administration’s efforts to pressure Beijing for sweeping changes to its trade and economic policies.

Tencent was the biggest contributor to MSCI’s global stock gauge, which rose 0.35%, and it was the top gainer on Hong Kong’s Hang Seng index, closing up 4.1%. The pan-European FTSEurofirst 300 index rose 0.71% and MSCI’s emerging markets index gained 0.99%.

The Dow Jones Industrial Average rose 66.57 points, or 0.26%, to 25,735.89, the S&P 500 gained 1.77 points, or 0.06%, to 2,851.9 and the Nasdaq Composite dropped 20.18 points, or 0.26%, to 7,796.15.

Turkey’s lira fell 3.16% to a session low of 6.2 to the dollar. While the lira clawed back sizable losses late last week after touching record lows of just over 7/$ last Monday, it has now declined about 26% so far in August.

Turkish sovereign dollar bonds fell across the curve on Monday and the cost of insuring exposure to Turkish debt rose after Moody’s and S&P Global lowered their sovereign credit ratings on Friday.

In addition, shots were fired at the US embassy in Ankara, compounding US-Turkish tension as a dispute over Turkey’s detention of an American pastor simmered.

Central banks in spotlight

In a week light on economic data, investors are turning their attention to central banks.

The Federal Reserve will release minutes from its August policy meeting on Wednesday, which will be scrutinised for new signs of whether four interest rate hikes are likely in 2018. The US central bank is widely expected to raise rates a third time this year in September, though doubts remain over another hike in December.

Fed chair Jerome Powell is due to speak on Friday at the annual economic symposium in August in Jackson Hole, Wyoming.

“It’s really going to be all about the minutes and Powell at Jackson Hole on Friday,” said Thomas Simons, a money market economist at Jefferies in New York.

Benchmark US treasury 10-year notes rose 14/32 in price to push yields down to 2.8244%, a four-week low.

The dollar index, which tracks the greenback against a basket of currencies, fell 0.01%, while the euro up 0.03% to $1.144.

The yen strengthened 0.06% versus the greenback at ¥110.45 per dollar.

US crude rose 24 US cents to $66.15 per barrel and global benchmark Brent 47c to $72.30.

Reuters