World shares still upbeat, but the Australian dollar takes a hit

London — Signs that the US and China are tackling some of the stickiest issues in their trade war kept world shares near a four-month high on Thursday, though it could not prevent a favourite Chinese proxy, the Aussie dollar, hitting the skids.

A brief rise in the euro and bond yields after some slightly brighter French data and some poor company earnings made for a low key start for the main FTSE 100, DAX 30 and CAC 40 bourses.

Asian trading had been far more eventful though. MSCI’s main Asia-Pacific index rose to a four-and-a-half month high after sources told Reuters that US and Chinese negotiators are drawing up six “memorandums of understanding” to solve their trade feud.

They include forced technology transfer and cyber theft; intellectual property (IP) rights; services; currency; agriculture; and non-tariff barriers to trade, the sources said, adding that the sides are pushing for an agreement by March 1, the deadline after which US tariffs on Chinese imports will ratchet up.

The big mover though was the Aussie dollar.

It slumped more than 1% after one of the country’s big banks, Westpac, called for two Reserve Bank of Australia (RBA) rate cuts this year and Reuters reported that the Chinese port of Dalian had banned imports of Australian coal, which is the country’s biggest export earner.

“It is hard to know how much of this is in the price considering the fall we saw from the Aussie dollar last year,” said State Street’s EMEA head of macro-strategy, Tim Graf. It is still up this year, however, which means “there is totally scope for further downside”.

The Aussie was last trading at $0.7105, down 0.8% on the day but it was not the only one struggling. The Kiwi dollar got bundled down 0.5% and the euro had given back its early gains to stand at $1.1320.

French PMIs had been reassuring but were then followed by news that eurozone factory output had unexpectedly slammed into reverse last month as activity in Europe’s manufacturing powerhouse Germany declined again.

IHS Markit’s Flash Composite eurozone Purchasing Managers’ Index (PMI), which is seen as a good guide to economic health, rose to 51.4 this month from a final January reading of 51.0, above a Reuters poll median expectation for 51.1 but still below where it has been for much of the past four years.

“The eurozone economy remained close to stagnation in February. The general picture remains one of a more subdued business environment than seen throughout much of last year,” Chris Williamson, IHS Markit’s chief business economist said.

Williamson said the results pointed to first-quarter eurozone growth of just 0.1%, below the latest Reuters poll estimate for 0.4%. They come soon after the European Central Bank (ECB) ended its more than €2.6-trillion asset purchase stimulus programme.

US Fed affirms ‘patient’ stance 

The slide in the Aussie dollar helped its share market close at a six-month high. Japan’s Nikkei had ended 0.1% stronger too, and though Chinese shares sagged, the “offshore” yuan firmed to its strongest level since July on the trade hopes.

Sterling shrugged off Fitch putting its UK credit rating on a formal downgrade warning amid uncertainty about whether the country’s parliament will be able to agree a transition deal before next month’s planned Brexit date.

US stock futures were up 0.2% after the US Federal Reserve affirmed on Wednesday that it would be “patient” on further interest rate rises and that the economy remains fundamentally strong.

The central bank also signalled it would soon lay out a plan to stop letting go of $4-trillion in bonds and other assets, though policy makers are still debating how long their newly adopted “patient” stance on US rates will last.

“The bar to restarting rate hikes in the near term seems to be quite high, with several participants arguing that rate increases would be necessary only if inflation outcomes were higher than in [the] baseline outlook”, Paul Ashworth, chief US economist at Capital Economics, said in a note.

In the commodity market, crude prices rose more than 1% on Wednesday to their highest in 2019 on hopes that oil markets will balance later this year. Oil prices were also helped by output cuts from top producers and US sanctions on oil cartel Opec members Iran and Venezuela. US crude was last up 0.3%, or 17c, at $57.33 a barrel. Brent was 0.1%, or 5c, higher at $67.13.

Gold was steady at $1,338.50, close to a 10-month peak of $1,346.70 scaled on Wednesday. 

Reuters