World stocks gain amid trade war hopes and sterling soars

London — Stocks gained amid trade war headlines on Thursday, while sterling rose to its highest in more than two years against the euro on hopes next week’s UK election will lead to a smooth Brexit.

Belief that a trade deal would be struck stemmed from a Bloomberg report on Wednesday that China and the US were close to phase one of a deal and from US President Donald Trump’s remarks that talks were going “very well”. Trump has said earlier a deal might have to wait until after US elections in November 2020.

If no agreement is reached soon, the next important date is December 15, when Washington is scheduled to impose more tariffs on Chinese goods.

“People are a bit exhausted of the pump and dump around the trade-deal news flow,” said Saxo Bank’s head of FX strategy, John Hardy.

Euro Stoxx 50 futures and London’s FTSE futures rose 0.1% in early trade. The pan-European Stoxx 600 was up 0.1%, mainly driven by utilities, healthcare and real estate shares.

Luxury stocks rose after Bloomberg reported that Gucci-owner Kering has held “exploratory” talks about a potential deal with Italy’s Moncler.

The trade-sensitive German blue-chip index was little changed. Futures were suggesting US stock markets would open higher.

Pound shines

While the dollar softened against most major currencies, sterling rallied to a seven-month high against the dollar and a two-and-a-half-year high against the euro, extending recent gains on growing expectations next week’s general election will not result in a hung parliament.

“With only a week to go until the UK election, the Tory party still holds a sizeable lead of about 10 percentage points over Labour,” MUFG analaysts told clients in a note. “It has made market participants increasingly confident to price in a Tory majority and an end to the deadlock in parliament.”

Sterling gained 0.3% against both currencies, as high as $1.3146 and €1.1800.

“It is getting quite aggressive here and shows people are pricing in a very smooth Brexit, but that also enhances any shock if there is a hung parliament,” said Saxo Bank’s Hardy. However, British fund manager M&G Investments has suspended dealing in its flagship UK property fund, blaming Brexit uncertainty and weakness in retailing.

The yen weakened, ceding some of the previous day’s gains as positive signs about the trade dispute hurt demand for safe-haven currencies.

The yield on benchmark 10-year US treasury notes fell to 1.7603%, retracing some of the gains made the day before. Most European government yields nudged higher.

Oil markets ran out of steam following a 3% rally overnight. Brent traded at $62.99 a barrel and US crude slipped 0.2% to $58.3 a barrel. However, prices may find support if oil cartel Opec and fellow producers (Opec+), including Russia, approve deeper cuts in crude output when they meet in Vienna on Thursday and Friday.

Reuters