Shares and oil at 3-month highs but no love for euro
Optimism about U.S.-China trade talks and bumper earnings lifted European shares to a three-month high on Thursday, though news that Germany only dodged recession by the narrowest of margins left the euro feeling unloved.
Markets were generally in a cautious mood as investors hung on for any hint of progress in the tariff talks amid reports the White House could extend the deadline for a deal.
Stocks extended gains regardless. Strong results from Nestle, drugmaker AstraZeneca and plane giant Airbus lifted the pan-European STOXX 600 0.4 percent and towards its best week since early November.
“Cupid continues to shoot out bullish arrows across financial markets with last week’s blip almost forgotten about for now,” Deutsche Bank said in a Valentine’s day morning note.
The euro did not share the loving feeling however.
It struggled near a three-month low as data showed Germany’s economy stalled in the fourth quarter, with fallout from global trade disputes and Brexit threatening to derail a decade-long expansion in Europe’s economic powerhouse.
Russian stocks and bonds were also dumped as a rare bipartisan move from U.S. lawmakers proposed stiff new sanctions on Russian government debt as well as some banks and oil and gas firms.
The Kremlin said it could cope with any new measures but shares in Moscow tumbled more than 2 percent amid a sharp spike in FX volatility gauges and a brisk selloff of most rouble-denominated government bonds.
“We were preparing ourselves for this eventuality,” said head of EM sovereign debt at Aberdeen Standard Investments Edwin Gutierrez. “But this is understandably causing a lot of noise and the U.S. senators have certainly tightened the language (of sanctions proposals) since last year.”
On China, President Donald Trump said on Wednesday trade talks were “going along very well” and, with Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer in China, investors had been daring to hope for good news.
Bloomberg said Trump was considering pushing back the March 1 deadline for higher tariffs on Chinese goods by 60 days.
But expectations have been disappointed before, and the reaction in Asian share markets was guarded. Shanghai blue chips closed broadly flat, having jumped 2 percent on Wednesday to levels last seen in late September.
MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.15 percent, though that was off a peak last seen in early October and Japan’s Nikkei finished flat having briefly touched its highest level this year.
LOVE SPREADS AROUND
The Australian dollar, often used as a liquid proxy for China risks, gained 0.4 percent to $0.7114 and S&P 500 futures added 0.15 percent having closed above its 200-moving average for the second running on Wednesday.
The Aussie dollar had already got a small lift when Chinese trade data handily beat expectations in a welcome relief for the global economy.
Beijing reported exports rose 9.1 percent in January from a year earlier, confounding forecasts of a fall, while imports dipped by a surprisingly slight 1.5 percent.
The recent improvement in risk appetite undermined the safe haven yen though and propelled the dollar to its best levels of the year so far at 111.05.
The subdued European data though, which also saw Italy confirmed in recession, pushed long-term market inflation expectations to new lows, while putting downward pressure on bond yields in the bloc.
The euro was at $1.1265, not that far above the floor of a $1.1213/1.1570 trading range that has held since mid-October.
Sterling was also on edge at $1.2845 ahead of another parliamentary vote on British Prime Minister Theresa May’s Brexit plan.
That all left the dollar near its highest since mid-December against a basket of currencies at 97.059.
In commodity markets, spot gold edged up 0.18 percent to $1,308.56 per ounce.
Oil prices found support as top exporter Saudi Arabia said it would cut crude exports and deliver an even deeper output cut.
U.S. crude was up 56 cents, or 1 percent, at $54.42 a barrel, while Brent crude futures rose 97 cents to $64.50, its highest since November.
“Thanks to healthy oil demand growth and lower OPEC+ production … we see the market tightening further over the coming months,” UBS analyst Giovanni Staunovo said.
“As such, we continue to expect Brent oil prices will move up to $70–80 a barrel over three to six months.”
Source: Reuters (Additional reporting by Sujata Rao in London, Wayne Cole in Sydney; Editing by John Stonestreet and Andrew Cawthorne)