A solid start from Europe kept world stocks at a three-week high on Tuesday after Asia was knocked back by a shock profit warning from tech giant Samsung and a tick-up in borrowing costs.
Hopes that Washington and Beijing may be moving towards a trade deal also helped the mood again and gave the dollar a lift in the currency markets after its weak start to the year.
That rise, along with the alarm from South Korea's Samsung that it would badly miss its earnings forecasts caused a swoon in emerging markets, but Europe held its nerve unlike last week after a similar warning from Apple.
The pan-European STOXX 600 rose 0.6 percent, Britain's FTSE was up 0.5 per cent amid reports of a Brexit delay and Italian banks jumped almost 1 percent as Rome stepped in to support another of its troubled lenders.
“I think the market has been quite extreme in pricing recession risks, so I think we have value now in both the equity and bond markets,” SEB investment management's global head of asset allocation Hans Peterson said. “The discussions between the US and China will take some time but I think the markets are prepared to move in the right direction on positive signals.”
US Commerce Secretary Wilbur Ross predicted on Monday that Beijing and Washington could reach a trade deal that “we can live with” as dozens of officials from the world's two largest economies resumed talks in a bid to end their trade dispute.
On Wall Street, the S&P 500 had gained 0.7 per cent following 3.4 per cent surge on Friday, with Amazon.com and Netflix leading the recovery rally after a brutal end to 2018.
MSCI's broadest index of Asia-Pacific shares outside Japan reversed early gains however to end down 0.2 per cent. It was dragged lower by falls in South Korea due to Samsung and in China where government bond yields also saw their biggest daily gain in 9 months
China's Foreign Ministry said Beijing had the “good faith” to work with the United States to resolve trade frictions, but many analysts doubt the two sides can reach a comprehensive agreement on all of the issues before a March deadline.
“Various concerns markets had earlier are receding for now. Still, there's no denying that U.S. (company) earnings momentum is slowing,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities. “Ultimately we need to see whether upcoming earnings reports can dispel market concerns.”
The dollar has its tail up, trading at 108.78 yen and $1.1285 to the euro as an unexpected fall in German industrial output for the third straight month helped to weaken the euro zone currency.
The British pound traded flat at $1.2780. UK and European officials are discussing the possibility of extending Britain's formal notice to withdraw from the European Union amid fears a Brexit deal will not be approved by March 29, The Daily Telegraph reported, citing unidentified sources.
Elsewhere, the Canadian dollar hit one-month highs, having gained 2.7 per cent in the past five days on gains in oil prices and on speculation the Bank of Canada will raise interest rates again this week. It last stood at 1.3272 per U.S. dollar .
In the bond markets, the 10-year US Treasuries yield bounced back to 2.687 per cent, from Friday's low of 2.543 per cent, a trough last seen almost a year ago. Still, that is more than 50 basis points below its October peak of 3.261 per cent.
Fed funds rate futures now price in a slim chance of a rate cut this year.
Oil prices were up on Tuesday, supported by hopes for Sino-US trade talks in Beijing and a Wall Street Journal report that Saudi Arabia is planning to cut crude exports to around 7.1 million barrels per day (bpd) by the end of January. Both US West Texas Intermediate (WTI) crude futures and International Brent crude futures stayed firm at $48.81 and $57.67 per barrel, respectively.