World stock markets surge on hopes of fresh US-China talks

Stock markets rallied on Monday after US President Donald Trump’s top economic adviser hailed “positive” trade talks with Chinese negotiators. “As the new week kicks off, stocks are in demand amid increased optimism over US and China reaching a trade deal and as investors anticipate stimulus measures to shore up slowing economies,” noted Fiona Cincotta, analyst at City Index trading group.

“After a disastrous previous week which saw equities experience the worst week this year, risk appetite was showing strong signs of improving.” Washington and Beijing are working to revive pivotal talks aimed at ending a trade war that has roiled world markets, Trump’s chief economic advisor Larry Kudlow said on Sunday.

The US president himself weighed in on Twitter, saying, “We are doing very well with China, and talking!” In another tweet, he added that the US economy was “poised for big growth after trade deals are completed,” and that China is “eating Tariffs.” There remains a high level of concern however about the global outlook and particularly the US economy after the yield on 10-year US Treasury bonds last week slid below that of the two-year note, while the 30-year yield fell below two per cent for the first time ever.

This so-called “inversion” − when short-term interest rates are higher than longer-term ones − is viewed as a harbinger of recession.

A majority of economists expect a US recession in the next two years, but have pushed back the onset, according to a survey Monday from the National Association for Business Economists.

The German economy could meanwhile enter a recession in the third quarter because of a “sharp” decline in industrial production held back by international trade tensions, the Bundesbank warned on Monday.

“The economy could contract again slightly,” Germany’s central bank said in its monthly report, following a 0.1-per cent decline in gross domestic product in the second quarter.

According to Germany’s Der Spiegel newspaper, Angela Merkel’s government is ready to boost public spending.

China has meanwhile announced an interest rate reform that it said would lower borrowing costs for companies.

“The week is off to a pleasant start, with traders seemingly buoyed by Chinese lending rate reforms and the prospect of German fiscal stimulus,” said Oanda analyst Craig Erlam.

In foreign exchange, the pound dropped on reports the UK government expects that a no-deal Brexit on October 31 could cause serious food, fuel and medicine shortages.

The government’s leaked readiness report found British businesses remain largely unprepared for no-deal − despite a Bank of England survey in March finding around 80 per cent judged themselves ready.

Meanwhile, Brazil Stocks rose for a second straight session on Monday, as signs of stimulus for China’s slowing economy eased growth worries, although currencies in the region weakened in line with their emerging market peers.

Sao Paulo-listed Stocks rose about 0.5%, tracking gains for global Stock markets after China’s central bank announced key interest rate reforms over the weekend, fueling expectations of an imminent reduction in corporate borrowing costs.

Separately, Sterling edged lower on Monday, although sentiment towards the pound was better than in recent sessions as investors hoped Britain and the European Union could make some progress in Brexit talks.

The pound last week had its strongest run in two months, helped by investors cutting their bets against the currency and some buying from traders who believe Britain can avoid a no-deal Brexit in October, when the country is due to leave the EU.

Prime Minister Boris Johnson will meet French President Emmanuel Macron and German Chancellor Angela Merkel this week ahead of a G7 summit on Aug. 24-26 in Biarritz, France.

Johnson on Monday called on France and Germany to change their position on Brexit and negotiate a new exit deal. The pound weakened 0.2% against the euro to 91.50 pence. Versus the dollar, the currency edged 0.1% down to $1.2134.

Johnson has repeatedly said Britain is leaving on Oct. 31 with or without a deal but the prospect of a no-deal Brexit hammered the pound in early August, sending it to two-year lows.

The pound hit a near three week high against the euro on Friday at 90.91 pence.

“The euro/sterling bounce has taken it back towards the middle of the recent trading range. Around 90-90.50 pence is a good support for the pound and unless we see some real progress on Brexit negotiations we should see the pound settle here,” said Adrian Schmidt, chief FX strategist at Continuum Economics.

Gold prices fell more than 1% on Monday, breaking below the key psychological level of $1,500, as easing concerns of a recession boosted investors’ affinity for risk and detracted from bullion’s safe haven allure.

Spot gold was down 1.1% at $1,496.90 per ounce as of 9:57am, while US gold futures fell 1% to $1,507.70.

“There has been some pullback in terms of the concerns over the risk of a recession. Perhaps the market’s reaction to events in the past week have been too much, so there has been some positive retracement of equity markets and downward pressure on gold,” said Jeff Klearman, portfolio manager at GraniteShares.

Agencies