World shares on a high in anticipation of US-China trade deal

London — World shares touched their highest in nearly two years on Tuesday as investors maintained bets that the US and China can reach a deal to end their damaging trade war.

The world’s two largest economies are in talks on an initial deal to end an 18-month trade dispute that has damaged supply chains and upset global markets, with Washington due to impose a new round of tariffs on Chinese goods from December 15.

A lack of clear news on the progress of talks has not deterred investors emboldened by a growing sense that risks of a recession, a spectre through the year, have receded.

Looser monetary policy from major central banks, such as China’s, has also helped bolster expectations for equities. The MSCI world equity index, which tracks shares in 47 countries, gained 0.1% to touch its highest since January last year.

European shares also moved up, with the broad euro Stoxx 600 adding 0.4% to move to its highest since July 2015. Indices in Frankfurt and London gained 0.4% and 0.5%, respectively. Wall Street futures indicated a positive start, too, adding 0.2%.

Investors said assumptions that an initial trade deal would be reached had outweighed any creeping doubts on progress in talks that stemmed from a lack of clear news, with a growing sense of positive economic fundamentals ahead.

“Consensus is assuming that there will be a cyclical upturn,” Stéphane Barbier de la Serre, a strategist at Makor Capital Markets. “It’s like the market lowered its guard on the big risk metrics — and that has triggered a reweighting of funds from bonds to equities.”

Hopes that Beijing will deliver some economic stimulus, in addition to Monday’s surprise cut to a closely watched lending rate, provided a boost to sentiment in Asian markets.

MSCI’s broadest index of Asia-Pacific shares excluding Japan rose 0.6%, with Shanghai blue chips gaining 1% and Hong Kong’s Hang Seng up 1.4%.

On the trade front, CNBC reported overnight that the mood in Beijing was pessimistic about prospects of sealing a trade agreement with the US, buffeting the dollar. But signs that suggested a growing detente between the sides clouded the picture: a new extension granted by Washington to let US companies keep doing business with Chinese telecoms giant Huawei suggested a possible olive branch.

That lack of clarity did unnerve some investors.

“The longer we go on, the more concerns will arise. The reality is the clock is ticking,” said Michael McCarthy, chief market strategist at brokerage CMC Markets in Sydney.

Dollar stabilises 

The listless mood in share markets was reflected by tepid moves among major currencies.

The dollar stabilised against a broad basket of other currencies on Tuesday after three consecutive days of losses, with investors awaiting the release of the minutes of the US Federal Reserve  meeting at end-October when policy makers had cut interest rates.

The dollar index against six major currencies was little changed at 97.807, close to a two-week low after weakening 0.6% in the last three days.

“Trade headlines are dominating sentiment but in terms of the key event risk, the release of the Fed minutes will be a big one for market participants,” said Morten Lund, a senior forex strategist at Nordea.

The pound settled at $1.2953 after hitting a one-month high overnight as opinion polls showed UK Prime Minister Boris Johnson’s Conservative Party on course for victory at the December 12 election.

In commodities, crude futures fell, losing 0.2% to $62.29 a barrel, with a combination of jitters over trade and expectations of a rise in US inventories jangling nerves.

Reuters