World stocks rise on trade talks optimism, soft Brexit hopes

London: World stocks rallied to six-month highs on Wednesday thanks to signs of progress in US-China trade talks, reassuring economic data and hopes of a softer Brexit, helping push Germany’s 10-year bond yield back above zero per cent.

Oil prices rose to within striking distance of the key $70 per barrel mark — a multi-month high — on supply concerns.

And sterling extended its gains after British Prime Minister Theresa May said late on Tuesday she would seek another Brexit delay to agree an EU divorce deal with the opposition Labour Party leader, raising hopes of a “softer” Brexit. Signs of progress in US-China trade talks and decent Chinese and US factory activity data in recent days has lifted sentiment and taken the edge off world recession fears.

Europe’s stock markets rose to their highest since August, while MSCI’s broadest index of Asia-Pacific shares outside Japan climbed to a seven-month peak.

That left the MSCI world equity index at a six-month high, while US equity futures pointed to a solid start for Wall Street shares.

“What we’re seeing is that markets have climbed a wall of worry but there is progress on trade, a recession is unlikely, central banks have made nods to more dovish policy,” said Chris Bailey, European strategist at Raymond James. “If you put that into the mix I’m not surprised risk assets have moved up.” Germany’s stock market rose over 1 per cent to its highest level since October, while French stocks scaled a similar high. A firmer pound, however, weighed on London’s FTSE index, which was flat on the day.

Wednesday’s economic news also lifted sentiment: activity in China’s services sector picked up to a 14-month high in March, eurozone retail sales were stronger than expected in February.

Hopes for a deal to end the trade war between the world’s two largest economies were meanwhile fanned by fresh comments from White House economic adviser Larry Kudlow that Washington expects “to make more headway” in talks this week.

“We’re being told that we’re 90 per cent of the way there which is obviously encouraging but the final 10 per cent — which apparently includes the enforcement mechanism and the removal of tariffs — could take some time to iron out,” said Craig Erlam, senior market analyst at Oanda in London.

“Investors are happy to be patient here in the hope that the two sides get this right and put an end to a trade war that has clearly taken its toll on markets.” For Reuters Live  Generally strong world stocks and hopes of a softer Brexit sparked a sell-off in safe-haven government bonds.

US 10-year Treasury yields rose almost 4 basis points to 2.52 per cent.

Germany’s benchmark 10-year Bund yield rose to 0.01 per cent, having hit a 2-1/2 year low at around minus 0.09 per cent a week ago. Britain’s 10-year gilt yield jumped 7.5 basis points to 1.08 per cent, heading for its biggest daily jump in three months.

Safe-haven gold also suffered from stronger world stock markets, dipping to $1,292.63 per ounce.

Oil prices rose for a fourth day, pushing Brent towards a nearly five-month high of $70 a barrel as support from Opec-led supply cuts and US sanctions overshadowed a report showing an unexpected rise in US inventories. US West Texas Intermediate crude rose 0.16 per cent to $62.68, having hit $62.99, the highest since Nov. 7.

Sterling rose further as traders welcomed news that Britain’s May would begin cross-party talks with the opposition Labour party as a signal that Britain will end up with a “softer” exit from the European Union.

The pound strengthened 0.4 per cent to $1.3196, its highest since March 28. The British currency had slipped below $1.30 on Friday on growing fears of a no-deal Brexit.

The dollar strengthened 0.15 per cent against the yen to 111.49 and the euro added 0.4 per cent to $1.12440.

The dollar index, which tracks the greenback against a basket of six major rivals, eased 0.4 per cent to 97.009.

Cryptocurrency bitcoin, which surged 18.7 per cent on Tuesday following a major order by an anonymous buyer, added another 1.2 per cent to $4,961.20.

Latin American stocks and currencies rallied on Wednesday on continued signs of progress in US-China trade talks and reduced fears of slower global growth as China reported positive economic data. Comments from White House economic adviser Larry Kudlow on Tuesday that the United States and China “expect to make more headway” in trade talks this week, and a survey showing activity in China’s services sector picked up to a 14-month high in March, boosted buying.

Among regional currencies, Brazil’s real firmed 0.4 per cent to its highest in a week and a half against a weaker dollar, while Mexico’s peso rose 0.2 although tensions at its border with United States kept gains in check. US President Donald Trump took a step back on Tuesday from his threat to close the U.S. southern border to fight illegal immigration, but he demanded on Wednesday that Mexico take immediate steps to deal with immigration to avert the closure. But Morgan Stanley said its analysts “believe that investors would be more comfortable owning risk in Mexico.”

Reuters