Stocks Nearing Record Highs on Trade Hopes
World shares made another push for an all-time high on Wednesday after U.S. President Donald Trump said Washington and Beijing were in the final throes of inking an initial trade deal.
European trading was restrained, with MSCI's all-country world index now within 0.4%, or 2 points, of its record high from January 2018.
London, Frankfurt, Paris and Wall Street futures all rose, and though Shanghai had struggled after Chinese industrial company profits shrank, Australia had set its own record high and Japan's Nikkei drew support from the growing likelihood of extra fiscal stimulus.
A senior Japanese ruling party official said on Wednesday he believed the government was striving to compile a supportive spending package worth about 10 trillion yen ($92 billion).
"Something will come out of the phase one (Sino-U.S. trade) talks," TD Securities Senior Global Strategist James Rossiter said. "Rolling back tariffs to where they were in August, with the December ones put on hold or cancelled maybe."
But he said the two countries were unlikely to go beyond that, and China's declining industrial profits underscored the economic strain exerted by the tensions.
In currency markets, the dollar was modestly stronger against developed and emerging currencies, with dollar/yen holding above 109 and euro/dollar steady at $1.10.
That was despite softer-than-expected U.S. economic data on Tuesday, which showed a fourth straight monthly contraction in consumer confidence and an unexpected drop in new home sales in October.
Sterling continued to wobble as pre-election opinion polls showed some narrowing of British Prime Minister Boris Johnson's Conservatives lead over opposition parties, even though he remains favoured to gain an overall majority.
The reaction to the polls squeeze has been modest as the prospect of another hung parliament raises the prospect of some form of coalition government made up of parties supporting a second Brexit referendum.
"So far, the market has been relatively complacent when it comes to the risks ahead," said Thu Lan Nguyen, FX strategist at Commerzbank. "Yes, the Tories still have the lead, but they're certainly not gaining."
YouGov will release seat-by-seat predictions of the election outcome at 2200 GMT. The "multilevel regression" and "post-stratification" model accurately predicted the 2017 hung parliament, so it will be closely watched.
Polling is certainly not infallible though, Thu Lan Nguyen pointed out. Before the 2016 Brexit referendum, most surveys had predicted the UK would vote to remain in the European Union.
Wall Street's main indexes were expected to add fractionally to the record highs they have consistently touched this month. Third-quarter earnings that have largely come in above lowered expectations and a third interest rate cut by the Federal Reserve this year has also helped.
Data due out later includes the Commerce Department's consumer prices report, where the CPI index is expected to have risen 0.1% in October after a flat September.
Separately, the department will also release the second reading of third-quarter GDP, which is expected to remain unchanged at 1.9%.
Another signal of the rising market confidence was the CBOE VIX equity volatility index, the so-called fear gauge, subsiding to seven-month lows.
It is now less than half the level it was in August, when U.S.-China talks looked close to collapsing, and a third of last December's level when stock markets were pulled lower by trade angst and rising interest rates.
Kay Van-Petersen, global macro strategist at Saxo Capital Markets in Singapore, said that while Sino-U.S. trade headlines might be driving some tactical, near-term moves in the market, they were mostly just "noise".
The broader market direction is "about the accommodative Fed and accommodative monetary policy and the fact that structurally the meta-trend is still lower in yields and rates," he said.
China had seized on the plunge in borrowing costs to issue its biggest international bond ever on Tuesday.
Some analysts said a renewed fall in U.S. and European bond yields this week also pointed to more mechanical explanations beyond trade for rising equity prices.
U.S. Federal Reserve Chair Jerome Powell said on Monday that monetary policy was "well positioned" to support the strong U.S. labour market.
In emerging markets, traders were watching Brazil's real, which fell to a record low, below the troughs of the 2015 recession, despite central bank intervention.
Among the main commodities, oil prices edged lower after reaching their highest since late September on the reassuring trade headlines. U.S. West Texas Intermediate crude was down 0.21% at $58.29 per barrel. Global benchmark Brent crude lost 0.11% to $64.20 per barrel.
Safe-haven gold changed hands at $1,458.33 per ounce on the spot market, down 0.2% on the day and heading for its worst month in almost three years after a 3.5% drop.
By Marc Jones