World stocks edge higher on rising oil prices, but trade worries persist

New York — World stocks rose on Tuesday, supported by broad gains in Europe and rising oil prices, even though markets across Asia remained in the grip of trade turbulence.

A July 6 deadline is looming for Washington to impose tariffs on $34bn worth of Chinese goods that Beijing has vowed to match with tariffs on US products. US President Donald Trump also threatened on Monday to “do something” if the US was not better treated by the World Trade Organisation (WTO).

Prospects of a full-blown trade war and relentless yuan weakening — it has fallen 5% in the past two weeks and is near 11-month lows — reportedly forced China into intervention via state-run banks. “It is by far the biggest [yuan loss] I can remember. Prudence suggests it has to be matched across Southeast Asia because of the competitive implications,” said Bank of New York Mellon strategist Neil Mellor. “It generates a degree of instability in the market simply by virtue of its scale.”

Among equity markets, Hong Kong dived as much as 3.3% to nine-month lows, also hit by US curbs on China Mobile. Shanghai’s bourse hit a two-year trough but closed higher as the yuan recovered.

The mood was more cheerful in Europe where a pan-European equity index rose 1%, the euro firmed, and bond yields climbed after German Chancellor Angela Merkel struck a migration deal with her Bavarian conservative coalition partners.

In the US, the Dow Jones Industrial Average rose 88.76 points, or 0.37%, to 24,395.94; the S&P 500 gained 7.04 points, or 0.26%, to 2,733.75; and the Nasdaq Composite added 2.71 points, or 0.04%, to 7,570.40.

“The big driver behind US resilience is that tech has been strong,” said Rory McPherson, head of investment strategy at asset manager Psigma. “Expectations are pretty high for the earnings season, with talk of 20% earnings growth year-on-year.” US markets are set to close early for the Independence Day holiday.

Energy stocks have been boosted by Brent crude’s rise past $78 a barrel, McPherson noted. Europe’s tech and energy sectors rose 0.5% and 1% respectively. This helped MSCI’s world index to rise 0.25%, edging further off two-and-a-half-month lows hit last week.

While US growth and company earnings seem unassailable, tit-for-tat tariffs from China and Europe may ultimately prove detrimental for US businesses and jobs. US bond yields rose slightly amid the easier mood but concern about the trade row has helped push the gap between two-and 10-year yields to its narrowest since 2007. “Basically, [the flat curve] is saying the underlying growth in the US economy may not be as strong as the high short-term interest rates might warrant,” McPherson said.

The dollar retreated 0.4% against a basket of currencies and the easing tensions in Germany helped the euro to gain 0.2% against the greenback.

Friday’s monthly payrolls data should show US labour markets remain tight, keeping the US Federal Reserve’s policy tightening on track.

Said Jane Foley, senior currency strategist at Rabobank, “Notwithstanding the trade-war concerns, the broader picture is that the US central bank still remains the most hawkish central bank among its peers and that should support the dollar for now,”

Reuters