World stocks gain as investors eye trade talks, Brexit

A man is seen in front of an electronic board showing stock information on the first day of trading in the Year of the Pig, following the Chinese Lunar New Year holiday, at a brokerage house in Hangzhou, Zhejiang province, China February 11, 2019. REUTERS

London (Reuters): World stock markets rose on Monday, as investors eyed the resumption of trade talks between the United States and China and watched for signs of progress on Brexit.

European markets took their cue from a 1% bounce in Chinese shares, which resumed trading after a week-long Lunar New Year holiday.

The pan-European STOXX 600 index rebounded from one-week lows, helped by some deal-making and gains in mining and banking shares. 

Worries about a slowdown in global growth, an ongoing US-China trade dispute and US politics have been foremost in investors’ minds. Safe-haven bonds and the dollar have gained amid the prolonged uncertainty.

Stocks have had a good year so far notwithstanding, with MSCI’S All-Country World Index up nearly 10% since the start of the year. The index was nearly 0.2% higher on Monday.

The dollar reached its highest in six weeks against a basket of currencies, rising for an eighth consecutive day as investors piled into the world’s most liquid currency. 

The chief focus for investors for the week seemed to be the resumption of trade talks between the US and China, along with Brexit.

“There will be important events this week connected to two of the key global uncertainties: high-level trade talks between the US and China in Beijing and UK-EU talks in Brussels. But neither looks set to produce a breakthrough, prolonging the uncertainty,” Societe Generale told clients in a note.

China struck an upbeat note as talks resumed, but it also expressed anger at a US Navy mission through the disputed South China Sea, casting a shadow over the prospect for improved Beijing-Washington ties.

The two sides are trying to come up with a deal before a March 1 deadline, when US tariffs on $200 billion worth of Chinese imports are scheduled to increase to 25% from 10%.

In fixed income, fears of economic slowdown in Europe and plunging inflation expectations dominated morning trade on Monday. Germany’s 10-year government bond yield remained close to 0.10%. Last week, the European Commission downgraded euro zone growth forecasts for this year. Adding to worries, a collapse in talks between US Democrat and Republican lawmakers over the weekend raised fears of another government shutdown.

“Trade talks and shut-down (worries) are really weighing on markets,” said Sebastian Fellechner, rates strategist at DZ Bank. “We don’t see any major movements because of the general and global uncertainty.”

The yield on Germany’s 10-year Bund, considered the risk-free benchmark for the region, fell as low as 0.77% on Friday, its lowest since October 2016, reflecting concern in bond markets about economic conditions.

The rising threat to growth means equity markets will partly depend on earnings from major US companies for clues about the health of consumer shares. These include Coca-Cola Co, PepsiCo Inc., Walmart Inc., Home Depot Inc., Macy’s Inc. and Gap Inc.

Analysts now expect first-quarter earnings for S&P 500 companies to decline 0.1% from a year earlier. That would be the first such quarterly profit decline since 2016, according to IBES data from Refinitiv.

In Asia, China’s blue-chip index surged 1.6%. Shanghai’s SSE Composite climbed 1.2%.

Australian stocks recouped some losses to end 0.2% lower. South Korea’s KOSPI index was up 0.2%. Indonesian and Indian benchmarks were in the red.

That left MSCI’s broadest index of Asia-Pacific shares outside Japan slightly higher after it fell from a four-month high on Friday. Trading volumes were generally light, with Japan on public holiday.

Elsewhere, the euro was barely changed at $1.1322 after five straight days of losses took it to more than two-week lows. Sterling fell to $1.2895 after UK GDP data for the fourth quarter was released.

Britain’s economy slowed as expected in the final three months of last year, pushing growth in 2018 to its weakest in six years as Brexit worries hammered investment.

British Prime Minister Theresa May has rejected the idea of a customs union with the European Union, ending hopes she would shift her Brexit policy to win over the opposition Labour Party.

May will promise lawmakers a second opportunity to influence the Brexit talks later in the month in a bid to stave off any rebellion from within her own party by those who fear Britain could end up leaving without a deal.

The Australian dollar inched up from Friday’s one-month lows, although sentiment was still cautious after the country’s central bank opened the door to a possible rate cut.

Oil prices slipped on concern about slowing global demand and a pick-up in US drilling activity.

US crude was 0.6% lower at $52.42 per barrel. Brent was flat $62.12.