World stocks came off six-week lows and US stock futures jumped yesterday on optimism that the United States and China are set to begin negotiations on trade, easing fears about a trade war between the world’s two largest economies.
MSCI’s world equity index, which tracks shares in 47 countries, touched its lowest level since February 9 but was then buoyed to a 0.25 per cent gain after a Wall Street Journal report that Treasury Secretary Mnuchin was considering a visit to Beijing to begin negotiations.
US stock futures shot up across the board, with Dow Futures up 1.2 per cent while S&P futures and Nasdaq futures up 1.3 per cent and 1.8 per cent respectively.
“Exemptions on steel/aluminium tariffs have already been granted for other important trade partners (Canada, Mexico, EU), which suggests the US President is using this approach more for negotiating leverage rather than any real intention to start a global trade war,” wrote Mike van Dulken, head of research at Accendo Markets, noting a “measured” and “nuanced” response from China so far.
Most European stock indices also strengthened, with the pan-European STOXX 600 benchmark up nearly half a per cent and the export-sensitive German DAX up 0.6 per cent.
Japan’s Nikkei, meanwhile, erased earlier losses of 1.3 per cent to end 0.7 per cent higher.
Fears of a trade war mounted this month after Mr Trump first slapped tariffs on steel and aluminium imports, and then on Thursday specifically targeted China by announcing plans for tariffs on up to $60 billion of Chinese goods.
Signs of potential compromises were also supported by news overnight that South Korea would be exempt from US steel tariffs in a revision of the bilateral trade pact between the two countries.
South Korea’s benchmark share index rose 0.8 per cent.
The dollar also bounced off a 16-month low against the Japanese yen but remained close to a one-month low against a basket of currencies, suggesting that fears have not receded completely.
Concerns over the formation of a new anti-establishment government in Italy weighed on Southern European debt in particular yesterday, though this was counterbalanced to an extent by a ratings upgrade for Spain late on Friday.
Italian bonds underperformed, with 10-year yields rising as much as 4 basis points on further signs that the anti-establishment 5-Star Movement and the anti-migrant League might explore an alliance to form a government.
But the euro was still on a positive trajectory, up half a per cent to a 2-1/2 week high of $1.2417.
In commodities, international Brent crude futures opened above $70 a barrel for the first time since January.
In a sign that jitters are still running through the market, spot gold was hovering around five-week highs and was up slightly at $1,348.69 an ounce.