London — World stocks extended their gains to hit a near-four week high and oil prices rose on Wednesday on optimism that the US and China may be edging towards a trade deal, soothing fears that an all-out trade war could hit a slowing global economy.
Delegations from China and the US ended talks that lasted longer than expected in Beijing on Wednesday amid signs of progress on issues including purchases of US farm and energy commodities and increased access to China’s markets. Officials said details will be released soon.
MSCI’s all-country index lifted 0.4% higher in a fourth straight day of gains. Asian bourses saw a strong finish with Japan’s Nikkei and China’s blue-chip CSI 300 closing up 1% while the tech-heavy South Korean KOSPI jumped nearly 2%.
European bourses took the cue with the pan-European STOXX 600 gaining 0.6% with both German and French benchmarks jumping 1%.
US stock futures also firmed, pointing to another strong day on Wall Street after the S&P 500 gained nearly 1% on Tuesday.
“The positive news around the trade talks is giving a boost to risk assets — it’s what the global economy needs to see,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London. “There are also reports of new initiatives by China to boost spending and that’s desirable from the perspective of Chinese and global growth.”
A senior Chinese official said Beijing plans to introduce policies to boost domestic spending on items such as vehicles and home appliances this year. Meanwhile, on the trade talks, sources said the two sides are still far apart on US demands for structural reforms in China.
Flexible US Fed
The rally in riskier assets has accelerated since last Friday, when US Federal Reserve chair Jerome Powell said he was aware of risks to the economy and would be patient and flexible in policy decisions this year.
In another sign of subsiding worries about the US economic outlook, Fed funds rate futures show traders are now pricing in a small chance of a rate hike in 2019, a change from late last week when futures markets had priced in a cut by the end of the year.
“Slowly but surely, the numerous headwinds that contributed to the market sell-off in the final quarter of 2018 are becoming less gale force and more strong breeze,” Craig Erlam at Oanda wrote in a note. “There is a clear risk that conditions could deteriorate quickly but at the moment, the storm is passing and investors are seeing opportunities in the wreckage.”
In currency markets, the dollar index softened 0.2% to 95.69 against a basket of currencies, hovering close to a two-and-a-half-month low hit on Monday. The euro traded at $1.1464 while the dollar stood at ¥108.85. China’s yuan strengthened in offshore trading by 0.4% to its strongest level in five weeks.