Trade war thaw and ECB hopes lift world stocks to six-week highs

Headquarters of the European Central Bank (ECB) pictured in Frankfurt September 8, 2016. — Reuters pic
Headquarters of the European (ECB) pictured in Frankfurt September 8, 2016. — Reuters pic

LONDON, Sept 12 — climbed to their highest in six weeks today as the European Central Bank prepared to offer new stimulus measures and the United States and made mutual concessions in their trade dispute, improving demand for riskier bets.

US President Donald Trump delayed an increase in tariffs on Chinese goods by two weeks, after China exempted some US drugs and other goods from tariffs. The two moves buoyed stock markets from Asia to Europe and put pressure on safe assets like the Japanese yen.

MSCI’s world equity index, which tracks shares in 47 countries, rose 0.2 per cent to its highest since August 1. It was on course for its seventh straight day of gains, its best winning streak in since early June.

Europe’s Euro STOXX 600 rose 0.3 per cent, climbing to its highest in nearly seven weeks. Frankfurt, Paris and London markets were up 0.1 per cent to 0.3 per cent. futures gauges also rose, adding 0.3 per cent.



Some analysts said investors were getting too eager for good news on the US-China trade war. The prospects of a quick resolution were still remote, they warned.

“I don’t think we’re heading for a deal soon,” said Neil Wilson, chief market analyst at Markets.com. “The market is just buying on any kind of positive news – it seems hungry for anything. It’s setting itself up for a bit of disappointment.”

The ECB’s move, due at 1145 GMT, also carries a risk of overly optimistic market expectations, investors said.

Major central banks worldwide are loosening monetary policy, expectations are sliding and the powerhouse German economy is at risk of recession. Consequently, ECB President Mario Draghi has all but promised more support.

But the central bank’s exact moves are far from certain, and any decision that underwhelms markets could push up borrowing costs.

Among the likely measures are a cut in the ECB’s record-low minus 0.4 per cent deposit rate, a multi-tier deposit rate, and new guidance on rates that would tie any move to certain inflation conditions.

A new round of buying, the bank’s most potent weapon, is also an option — but policymakers from Germany to France are sceptical about that move.

“We could see some disappointment here. The challenge is more about forward guidance and reassurance for the future,” said Christophe Barraud, chief economist at Market Securities in Paris.



“It would be surprising if the ECB launches a big stimulus right now ahead of uncertainties such as hard Brexit and the trade war. I think the ECB wants to keep some room for another external shock.”

After the ECB decision, the US Federal Reserve is expected to cut rates next Wednesday and the Bank of Japan and Swiss National Bank next Thursday also may ease.

Bonds calm, yuan rises

Euro zone government bonds were steady in early trade, after rising from reached a week ago on doubts that the ECB would resume asset purchases.

“Whether the ECB cuts rates by 10 or 20 bps is neither here or there,” said Chris Scicluna, head of economic research at Daiwa Capital Markets. “The big question is whether they restart QE, and if they don’t, we will see a further sell-off in bonds, especially longer-dated ones.”

The optimism over trade and the looming ECB decision were felt in currency markets, too.

The euro fell to a one-week low of US$1.0983 overnight on expectations of ECB easing before steadying in morning trade. It has shed 3.5 per cent since June.

With risk-hungry investors emboldened, the Chinese yuan rose 0.4 per cent against the dollar, touching a three-week high of 7.0855. The Japanese yen, a safe haven for nervous investors, fell to a six-week low against the dollar.



The easing of US-China tensions supported oil prices, too.

crude futures rose 10 cents, or 0.2 per cent, to US$60.91 a barrel by 0746 GMT, recouping some of the previous session’s losses. A decline in US crude stockpiles to their lowest in nearly a year also helped.  — Reuters

Source: The Malay Mail Online





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