World stocks rise as US, China agree to hold trade talks

Reuters London | Updated on August 17, 2018 Published on August 17, 2018

The MSCI All-Country World index, which tracks shares in 47 countries, was up 0.2 per cent but set for its third straight weekly fall.

Emerging stocks, European banks and copper enter bear market

World stocks rose on Friday as news of plans for US-China trade talks soothed nerves over their tariff war, while the recovery in Turkey's lira ran out of steam.

The MSCI All-Country World index, which tracks shares in 47 countries, was up 0.2 per cent but set for its third straight weekly fall.

A Chinese delegation led by Vice Minister for Commerce Wang Shouwen will meet US representatives, China's Ministry of Commerce said in a statement, with the Wall Street Journal reporting that talks will take place in Washington on August 21 and 22.

The world's two largest economies are due to slap tariffs on billions of dollars of each other's goods on August 23 in addition to levies that took effect on July 6.

“There is still a great deal of difference between agreeing to talk and coming to an agreement,” said CMC Markets analyst Michael Hewson.

“For now it appears an escalation has become less likely, hence yesterday's rebound in equity markets,” he added, referring to an overnight rally on Wall Street.

Turkey's lira, meanwhile, dropped nearly 3 per cent to almost 6 per dollar again, having recovered ground rapidly in recent days.

Lira plunges to record low

The currency plunged to a record low of 7.24 per dollar at the start of the week as worsening of relations between Turkey and the United States added to losses driven by concerns over President Tayyip Erdogan's influence over monetary policy. The currency has lost a third of its value this year.

“To declare with confidence that the worst is over for the lira the central bank would have to act decisively on September 13 (or earlier if the selling pressure on the lira resurfaces), diplomatic tension with the US would have to ease and prudent fiscal measures and structural reforms would have to be swiftly implemented,” Rabobank strategists wrote in a note to clients.

Turkey central bank meet

Turkey's central bank meets next on September 13. Ratings agency Standard & Poor's is also scheduled to release a review of Turkey's sovereign credit rating after the market close on Friday.

Memories of past emerging market crises, such as the Asian financial crisis of 1997 and Turkey's 2001 crisis, came back to haunt investors this week and prompted a wave of selling across emerging market assets as a whole.

The three bears

Global stocks also suffered this week as the sell-off spilled into developed markets, adding to the angst over US-China trade relations and the fiscal prudence of Italy's anti-establishment government.

Emerging market stocks entered a technical bear market as the sell-off intensified, registering a 20 per cent drop. There was more gloom elsewhere, with European banks and copper also falling into bear market territory.

London copper slid 1 per cent, declining for a fifth session in six and set for its biggest weekly decline since early July as supply disruption concerns eased. Pig prices dropped on concerns about an outbreak of African swine fever, which could hit demand in China, where retail sales top $840 billion a year.

Elsewhere, the dollar dipped against a basket of currencies , moving further away from its highest levels since June 2017, hit earlier in the week as investors bought the US currency in a flight to safety. The euro rose nearly 0.4 per cent to its highest since Tuesday.

Brent crude oil futures rose 0.4 per cent to $71.72 a barrel and US West Texas Intermediate (WTI) crude futures were up 0.3 per cent at $65.66.

Published on August 17, 2018

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