Global stocks climb on hopes of US-China trade talks

Reuters London | Updated on August 20, 2018 Published on August 20, 2018

The gains in Europe helped lift the MSCI All-Country World index, which tracks shares in 47 countries, by 0.3 per cent.

Turkish lira under renewed pressure after ratings downgrade

Global stocks rose on Monday amid optimism over planned trade talks between the United States and China, while Turkey's lira fell after its credit ratings were downgraded and shots were fired outside the US embassy in Ankara.

European shares opened higher, as investors hoped the US and China might find a compromise to resolve their trade dispute. The pan-European STOXX was up 0.7 per cent, with most markets across the continent gaining.

The gains in Europe helped lift the MSCI All-Country World index, which tracks shares in 47 countries, by 0.3 per cent. The gauge has nearly recouped the losses from last week caused by the plunge in Turkey's currency.

China and the United States will hold lower-level trade talks this month, the two governments had said last week. The Wall Street Journal reported that the talks would take place on August 22 and 23. That's just before new US tariffs on $16 billion of Chinese goods take effect, along with retaliatory tariffs from Beijing on an equal amount of US goods.

Asian stock markets seemed to welcome the news, with MSCI's broadest index of Asia-Pacific shares outside Japan climbing nearly 1 per cent. Hong Kong's Hang Seng index added 1.4 per cent. Shanghai blue chips rose over 1 per cent and Japan's Nikkei ended 0.3 per cent lower. EMini futures for the S&P500 were up 0.2 per cent.

Analysts gave a more lukewarm reception. “Trade talks between the US and China are to be resumed this month, and traders are cautiously optimistic, but just because the meeting has been lined up doesn't mean anything will come of it,” said David Madden, chief markets analyst at CMC Markets in London.

“Some traders view the (recent) weakness in the Chinese stock market and currency as a sign that Beijing will be more accommodating when it comes to negotiations.”

Turkey's lira fell nearly 1.8 per cent, beyond 6 lira per dollar. Turkish sovereign dollar bonds fell across the curve on Monday and the cost of insuring exposure to Turkish debt rose after Moody's and S&P Global lowered their sovereign credit ratings on Friday .

In addition, shots were fired at the US Embassy in Ankara, compounding tensions between Turkey and the United States as a dispute over Turkey's detention of an American pastor simmered .

Central banks in spotlight

In a week without much economic data, investors turning their attention to central banks. Minutes of the Federal Reserve's August policy meeting are due on Wednesday and should show policy makers are upbeat on the economy and committed to further interest rate increases.

Fed Chair Jerome Powell and other central bankers meet at Jackson Hole, Wyoming, from Friday to discuss stubbornly low inflation, slow wage growth and lethargic productivity gains .

“The question is not only whether the Fed acknowledges the EM market volatility, but also the fact that its own policy signals are playing a part in the broader deterioration in global risk appetite,” wrote ING currency strategist Viraj Patel in a note to clients.

The prospect of rising US rates had been underpinning the dollar, though the currency took a knock on Friday as risk appetite improved a little. The dollar index, which tracks the greenback against a basket of currencies, was up 0.2 per cent.

The euro was down 0.2 per cent, while the dollar gained 0.2 per cent to 110.65 yen and just above recent lows at 110.11/31.

In commodity markets, gold was 0.3 per cent higher at $1,188.84 an ounce after its largest weekly loss since May 2017. It hit a 19-month low at $1,159.96 last week.

Brent oil stabilised after several weeks of decline, weighed down by concern over slowing global economic growth but supported by an expected fall in supply from Iran caused by US sanctions. On Monday, Brent was 0.6 per cent higher at $72.26 a barrel. US crude was up 0.2 per cent at $66.02.

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Published on August 20, 2018
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