European stocks rise on optimism over US-China talks

London — Positive noises from China on US trade talks lifted European stocks on Thursday and snuffed out a modest rally in safe-haven assets that had dominated in Asia.

Europe’s main bourses had initially stuttered but muscled 0.5% higher when China said it was in close communication with Washington and preparing to make progress in upcoming trade talks.

US President Donald Trump had also stoked hopes when he told reporters the two sides were having “good conversations” and that an agreement “could happen sooner than you think”.

Investors top-sliced some of their European government bond holdings in response, as the third German resignation from the European Central Bank’s (ECB) board in recent years overnight also amplified doubts about the sustainability its stimulus measures.

But it was nothing too dramatic; 10-year yields were up no more that two basis point across the region, and the major currencies barely budged too, having now got used to the constant to-ing and fro-ing of the year-long trade war.

Just on Tuesday, Trump sharply criticised China in a speech at the UN General Assembly, where he said he would not accept a “bad deal”.

“I think the trade talks will take years, if it ever has a solution,” Makor Capital Markets strategist, Stéphane Barbier de la Serre, said. “To me, what we see [today] is just market expectations, it is purely micro-management of the market, nothing else. We are nearing a point where nobody cares about the discussions.”

The side-winding dollar was still well within reach of a two-year high having also shrugged off the latest controversy surrounding Trump.

Transcripts of a call showed he had nudged Ukraine’s president for possible information on presidential rival Joe Biden. Traders, however, remained sceptical about the likelihood of Trump being officially impeached.

Cutting

The biggest currency rise of the day, meanwhile, was the New Zealand dollar, which climbed 0.5% to $0.6305 after the head of the country’s central bank said it was unlikely to need unconventional stimulus measures.

Elsewhere in the region the Philippines joined the army of global central banks that have cut interest rates this month, with a 25 basis point trim to 4%. Mexico could slice its 8% rates by a similar amount later, too.

Overnight, the rest of Asia struggled for clear direction. MSCI’s broadest index of Asia-Pacific shares excluding Japan and Japan’s Nikkei both ended fractionally higher after Japanese Prime Minister Abe Shinzo and Trump signed a limited trade deal on Wednesday.

However, major China tech stocks slumped more than 3% for the second day running, Australian shares fell 0.5% and gold tip-toed higher in a sign that some investors were still searching out safety.

Oil prices swung in and out of the red meanwhile with Brent fetching $62.52 a barrel and US crude at $56.50 a barrel.

Reuters