Global stocks rally on China-US trade hopes, dollar trades at multi-year lows

 Global shares reached a record high on Friday, helped by market optimism over signs of progress in US-China trade talks, while the dollar held close to its lowest levels in more than three years.

The benchmark S&P 500 index and Nasdaq hit all-time highs, lifted partly by gains in megacap growth stocks including Nvidia and Amazon.

The S&P 500 index and Nasdaq are headed for a weekly gain and are up about 5% this year overall, following a volatile first half of the year, dominated by US President Donald Trump's tariff announcement on April 2, which sent stocks plunging.

The pan-European STOXX 600 index was up 0.66% on the day, set for a weekly gain.

The MSCI World Equity index touched a record high and was set for a weekly gain of 3.2%. London's FTSE 100 rose 0.35%. Asian shares hit their highest in more than three years in early trading.

"It's a continuation of this monster rally since early April," said James St. Aubin, chief investment officer at Ocean Park Asset Management in Santa Monica, California. "It's been quite an improbable comeback and it continues, assuming that the tariff controversy is no longer a major issue in the psyche of the market."

Investors saw a trade agreement between the United States and China on Thursday on how to expedite rare earth shipments to the United States as a positive sign, amid efforts to end the tariff war between the world's two biggest economies.

Trump has set July 9 as the deadline for the European Union and other countries to reach a deal to reduce tariffs.

Traders took confidence too from a ceasefire between Iran and Israel and markets stepped up bets for US rate cuts amid the possibility of Trump announcing a new, more dovish Federal Reserve chair ahead of the expiration of Jerome Powell's term next year.

Data showed US consumer spending unexpectedly fell by 0.1% in May for the second time this year, while monthly inflation maintained a moderate pace of increase.

"We're starting to see earnings estimates for the next 12 months on the rise again after taking a little bit of a dip and that's what the market is buying into," St. Aubin added.

The dollar remained on the backfoot, hovering near its lowest level in 3-1/2 years against the euro and sterling.

The dollar weakened 0.16% to 0.799 against the Swiss franc but was up 0.18% to 144.63 against the Japanese yen . The euro was at $1.1708, getting a lift after data showed French consumer prices rose more than expected in June.

The dollar index was down 0.1% on the day at 97.269, holding near its lowest in more than three years. The dollar is having its worst start to a year since the era of free-floating currencies began in the early 1970s.

Traders have stepped up their bets on US rate cuts, and are now pricing in 64 basis points (bps) of easing this year versus 46 bps expected on Friday.

The yield on benchmark US 10-year notes rose 1.2 basis points to 4.265%.

German 30-year government bond yields were on track for their biggest weekly increase in nearly four months after rising this week on expectations of increased borrowing by Germany's government.

Oil prices meanwhile rose but were set for their steepest weekly decline since March 2023, as the absence of significant supply disruption from the Iran-Israel conflict saw any risk premium evaporate.

Brent crude futures rose 0.66% to $68.18 a barrel while US West Texas Intermediate crude was up by 1% to $65.91 . Spot gold fell 1.72% to $3,270.50 an ounce.

Oil prices rose on Friday but were set for their steepest weekly decline since March 2023, as the absence of significant supply disruption from the Iran-Israel conflict saw any risk premium evaporate.

Brent crude futures were up 53 cents, or 0.78%, to $68.26 a barrel at 1457 GMT, while US West Texas Intermediate crude was up 59 cents, or 0.9%, to $65.82.

During the 12-day war that started after Israel targeted Iran's nuclear facilities on June 13, Brent prices rose briefly to above $80 a barrel before slumping to $67 a barrel after US President Donald Trump announced an Iran-Israel ceasefire.

That put both contracts on course for a weekly fall of about 12%.

"The market has almost entirely shrugged off the geopolitical risk premiums from almost a week ago as we return to a fundamentals-driven market," said Rystad analyst Janiv Shah.

He said the market was also keeping an eye on the July 6 meeting of oil producers group OPEC+, where another output hike of 411,000 barrels per day is expected, while adding that summer demand indicators were key as well.

Phil Flynn, senior analyst with the Price Futures Group, said expectations of higher demand in the coming months were also giving crude a boost on Friday.

"We're getting a demand premium on oil," Flynn said.

A possible end to the 19-month war between Israel and Hamas in Gaza and expected agreements between the US, Europe and China on trade were positive signs for the market, he added.

"If we get a trade deal with China, we're going to be in pretty good shape," Flynn said.

Prices were also supported by multiple oil inventory reports that showed strong draws in middle distillates, said Tamas Varga, a PVM Oil Associates analyst.

Data from the US Energy Information Administration on Wednesday showed crude oil and fuel inventories fell a week earlier, with refining activity and demand rising.

Meanwhile, data on Thursday showed that independently held gasoil stocks at the Amsterdam-Rotterdam-Antwerp (ARA) refining and storage hub fell to their lowest in over a year, while Singapore's middle distillates inventories declined as net exports climbed week on week.

Additionally, China's Iranian oil imports surged in June as shipments accelerated before the Israel-Iran conflict and demand from independent refineries improved, analysts said.

China is the world's top oil importer and biggest buyer of Iranian crude. It bought more than 1.8 million barrels per day of Iranian crude from June 1-20, according to ship-tracker Vortexa, a record high based on the firm's data. (Reporting by Erwin Seba in Houston, Siyi Liu in Singapore and Nicole Jao in New York

Agencies