World stocks rise as US tariffs on China less harsh than feared

Milan — A bounce in world stocks in relief that the fresh US and Chinese tariffs on reciprocal imports are less harsh than feared continued on Thursday, although investors remained wary about the next steps in the US-China trade war.

An MSCI index tracking shares in 47 countries rose 0.2%, supported by gains in Europe and Asia, but Chinese equities dipped after a rally on bets of government stimulus to limit the economic damage of new trade barriers.

The pan-European STOXX benchmark rose 0.3%, while Japan’s Nikkei ended little changed, barely moving after a well-anticipated win by Japanese Prime Minister Shinzo Abe in a ruling party leadership vote.

Markets were also watching an EU summit where Prime Minister Theresa May appealed to fellow EU leaders on Wednesday to drop Brexit demands that she said could rip Britain apart.

After a knee-jerk negative reaction to the new tariffs announced by Washington and Beijing on Tuesday, markets have been speculating that an immediate escalation could be averted. US President Donald Trump has not made fresh threats that he would seek to extend tariffs to all Chinese imports.

“Making forecasts on Trump is always a risk but it’s a fact that at the moment the escalation has taken a break,” said Anthilia Capital fund manager and strategist Giuseppe Sersale. For his part, Chinese premier Li Keqiang said this week that he would not would not weaken the yuan to boost exports.

Broader market sentiment was at odds with a new Reuters poll that shows unanimous agreement that an escalating trade war with China is bad economic policy for the US and could cause economic growth to slow. Rob Carnell, chief economist and head of research, Asia-Pacific at ING, said he saw more reasons to take a “glass-half-full” approach, given the recent emerging-market sell-off.

The consensus of the poll for US growth showed a slowdown to 2% in the final quarter of 2019, less than half the last reported rate of 4.2%. 

Wall Street gains

Meanwhile, S&P 500 E-mini futures were little changed following strong gains on Wall Street on Wednesday. The rally in global stocks has been accompanied a drop in demand for safe-haven assets, boosting US bond yields and sending the dollar to seven-week lows. The yen has also been under pressure.

The yield on benchmark 10-year US treasury notes, which, on Wednesday, touched its highest level since May 18, eased back to 3.0682% on Thursday. This move comes ahead of what is expected to be a hawkish meeting of the US Federal Reserve next week.

All 113 economists in the Reuters poll forecast the Fed will hike rates when it meets on September 25-26. It is expected to follow that up with one more before the end of this year, taking the fed funds rate to 2.25% to 2.50%.

The dollar index, which tracks the dollar against a basket of six major rivals, dipped 0.18% at 94.371. The dollar was 0.04% lower against the yen at 112.25 , while the euro was 0.26% stronger against the greenback at $1.1700. The pound rose 0.3% to $1.3188 against the dollar, helped by growing confidence that a Brexit trade deal can be clinched in the coming months.

On Thursday, cabinet office minister David Lidington said Britain was more than 85% of the way to agreeing a deal with the EU on its exit from the bloc.

The Norwegian krone slumped against the euro after the country’s central bank raised interest rates for the first time in seven years, as expected, but trimmed its policy rate forecasts. The krone fell 0.9% against the euro to 9.5990.

In commodities, news of another drawdown in US crude inventories and signs that oil cartel Opec may not raise output enough to compensate for the loss of Iranian exports hit by sanctions, lifted benchmark Brent crude 0.11% at $79.49.

Base metals rose, buoyed by relief over trade and a shortage of the metal in top consumer China, with London Metal Exchange zinc hitting a fortnightly high before paring some gains to trade up 0.5% at $2,446 a tonne. 

Reuters