London: A strong day for Europe and a jump in Wall Street futures kept world stocks at a three-week high on Tuesday, after Asia was knocked back by a shock profit warning from tech giant Samsung.
Hopes that Washington and Beijing may be moving towards a trade deal helped the mood again and also gave the dollar a lift in the currency markets after its shaky start to the year.
That rise, along with the alarm from South Korea’s Samsung that it would badly miss its earnings forecasts, caused a slip in emerging markets, but Europe held its nerve — unlike last week after a similar warning from Apple.
The pan-European STOXX 600 rose 1.5% despite some wobbles in Italy as Rome stepped in to support another of its struggling lenders. Britain’s FTSE was up 1.2% too as its retailers cheered rare good news about Christmas trading.
“I think the market has been quite extreme in pricing recession risks, so I think we have value now in both the equity and bond markets," SEB investment management’s global head of asset allocation Hans Peterson said.
“The discussions between the US and China will take some time but I think the markets are prepared to move in the right direction on positive signals."
US President Donald Trump tweeted ahead of the start of Wall Street trading that talks with China, which were going into a second day, were going “very well".
US Commerce Secretary Wilbur Ross had predicted on Monday that Beijing and Washington could reach a trade deal that “we can live with"
S&P 500 futures gained 0.8% following a near four percent surge on Wall Street since Friday, led by Amazon and Netflix which have been recovering some of the ground they lost during a brutal end to 2018.
MSCI’s broadest index of Asia-Pacific shares ended down 0.2%, however. It was dragged lower by falls in South Korea due to Samsung and in China where government bond yields also saw their biggest daily gain in nine months.
China’s Foreign Ministry said Beijing had “good faith" to work with the United States to resolve trade friction, but many analysts doubt the two sides can reach a comprehensive agreement on all of the issues before a March deadline.
“Various concerns markets had earlier are receding for now. Still, there’s no denying that US (company) earnings momentum is slowing," said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
“Ultimately we need to see whether upcoming earnings reports can dispel market concerns."
The dollar has its tail up, trading at ¥108.90 and $1.1431 to the euro as an unexpected fall in German industrial output for the third straight month also helped to weaken the euro zone currency.
The British pound traded a tad lower at $1.2741 as British and European officials played down a report in the Daily Telegraph newspaper on plans to extend Britain’s formal Article 50 notice to withdraw from the European Union.
“I wouldn’t really want to think about the possibility of extending Article 50 here and now," said I don’t think this is what we ought to focus on today," German Foreign Minister Heiko Maas told journalists during a visit to Dublin.
Elsewhere, the Canadian dollar hit one-month highs, having gained 2.7% in the past five days on gains in oil prices and on speculation the Bank of Canada will raise interest rates again this week. It last stood at 1.3272 per US dollar.
In the government bond markets, Europe’s yields were squeezed higher by a deluge of upcoming debt sales and the 10-year US Treasuries yield bounced back to 2.70%, from Friday’s near one-year low of 2.543%.
Still, its latest level is still 50 basis points below its October peak of 3.261% and recent caution from the head of the Federal Reserve mean futures markets are now pricing in a slim chance of a US rate cut this year.
Oil prices were also up again on Tuesday, supported by hopes for Sino-US trade talks in Beijing and a Wall Street Journal report that Saudi Arabia is planning to cut crude exports to around 7.1 million barrels per day (bpd) by the end of January.
Both US West Texas Intermediate (WTI) crude futures and International Brent crude futures stayed firm at $49.45 and $58.27 per barrel, respectively, while safe-haven gold eased back to $1,283 an ounce.