China leads world stocks in bid to scale Fed, trade war hurdles

Brent oil hits 4-year high before easing

LONDON, Sept 26, (RTRS): A Chinese equity bounce set a modestly positive tone for world stocks on Wednesday as bets that Beijing would expand stimulus to support its economy helped offset some of the worries about global trade tensions and $80-a-barrel oil.

World stocks were flat, not far off six-month highs, but sentiment remains in check with US benchmark bond yields close to sevenyear peaks, and as investors weigh how much more policy tightening is in store from the US Federal Reserve.

European shares trod water, failing to extend gains seen in Asia where Shanghai-listed shares closed almost one percent higher at eight-week highs. However, Wall Street looked set for a firmer session, with futures for all three New York indices up around 0.2 percent.

Chinese shares rose after global index provider MSCI said it could quadruple China’s weighting in global benchmarks, lending fresh impetus to a market already buoyed by expectations of state stimulus to offset the impact of US tariffs.

A pan-European equity index failed to build on the previous session’s gains though it remains close to onemonth highs. World shares too struggled to make headway with investors keeping close watch on bond yields in the United States and Germany.

In the latest hurdle for equity markets, ten-year borrowing costs in both countries have inched to multi-month highs, with the first interest rate rise by the European Central Bank now expected in September 2019, two months earlier than had been priced recently.

German bonds, where many investors have taken shelter due to uncertainty in Italian markets, could see yields rise as the Italian coalition government has signalled repeatedly in recent days that its budget statement due on Thursday will not set out a spending binge. Italian yields fell as much as 10 bps on the day.

US 10-year Treasury yields traded around 3.08 percent, having risen as high as 3.113 percent on Tuesday, approaching a seven-year peak of 3.128 percent hit on May 18.

The dollar rose against a basket of major currencies to around 94.3, inching off 2-1/2-month lows hit last week. The euro slipped to $1.1744, not far from a three-month high of $1.18155 touched on Monday, while the yen changed hands at 112.9 to the dollar, approaching six-month lows set in mid-July.

Oil prices eased off four-year highs above $82 hit on Tuesday but were still set for a fifth consecutive monthly quarter of gains, driven by a looming drop in Iranian exports in the last quarter of the year when global demand heats up.

US

Gains in healthcare and media stocks lifted Wall Street on Wednesday, although banks dropped ahead of a widely expected interest rate hike by the US Federal Reserve.

With a third rate hike all but certain, and chances of a fourth increase in December firming after robust consumer confidence data on Tuesday, investors are keen to know whether the Fed will officially end the era of easy money.

Some analysts expect a more aggressive tilt, whether in the policy statement at 2 pm ET (1800 GMT), the accompanying economic and interest rate projections, or at Fed Chairman Jerome Powell’s press conference.

Financial stocks overall were 0.44 percent lower, with bank shares faring marginally worse. Only Citigroup and M&T Bank eked out gains.

The health sector rose 0.86 percent, as biotechs led the gains, while the newly-formed communications services sector gained 0.79 percent, boosted by media companies, including Disney.

As a result, the Dow Jones Industrial Average was up 72.50 points, or 0.27 percent, at 26,564.71 at 13:09 am EDT.

The S&P 500 was up 8.53 points, or 0.29 percent, at 2,924.09 and the Nasdaq Composite was up 31.99 points, or 0.40 percent, at 8,039.46.

The interest-rate sensitive utilities and real estate sectors fell 0.20 percent and 0.29 percent, respectively.

In health stocks, Alexion Pharmaceuticals rose 6.1 percent after a $1.2 billion deal to buy privately held Syntimmune. Among biotechs, Biogen advanced 2.9 percent.

Twenty-First Century Fox rose 1.5 percent after agreeing to sell its stake in Sky to Comcast, which gained 0.5 percent. Disney, which is buying Fox, jumped 2.1 percent.

Nike fell 1.2 percent, the most on the Dow, as the sportswear maker stopped short of raising its financial forecast.

Europe

European shares held their ground near 4-week highs on Wednesday before a widely expected rate hike by the US Federal Reserve.

The pan-European STOXX 600 benchmark index ended up 0.3 percent, while London’s FTSE 100 and Frankfurt’s DAX both advanced around 0.1 percent.

European shares have been under pressure this summer but they have rebounded over the last few days on hopes the US could resume trade talks with China after the two countries moved ahead with new tariffs on each other’s exports.

Easing worries over Brexit and the Italian budget, due on Thursday, helped bring investors’ attention back to the region’s cheaply valued equity market. Fresh deal-making activity also buoyed the market.

On Wednesday the STOXX was supported by gains in defensive sectors like consumer staples and healthcare, while cyclical stocks that drove most of the recent gains suffered.

Basic materials stocks led sectoral losers as after copper prices fell, weighed down by a firmer dollar ahead of the expected rate hike in the US.

Oil stocks also fell as investors took profit following strong gains this week driven by crude oil prices rising to four-year highs at above $80 a barrel. BP and Total were down 0.3 percent and 0.1 percent respectively.

Autos were in focus on news that carmakers had triggered some Brexit contingency plans in Britain. After initial losses, their sectoral index recovered to end up 0.3 percent.

Among top movers, Indivior declined 16 percent after the drugmaker revised its full-year earnings guidance as it sharply lowered its revenue expectation for opioid addiction drug Sublocade.

France’s Bouygues rose 2.7 percent after the stock was upgraded to overweight by JP Morgan.

Asia

Most Asian markets rose on Wednesday, with energy firms surging along with oil prices, as traders await the conclusion of a key Federal Reserve policy meeting.

Energy firms shot sharply higher in Asia. CNOOC added 4.4 percent and PetroChina piled on almost five percent in Hong Kong, while Sinopec jumped 2.4 percent. Inpex of Japan put on two percent and Australia’s Woodside Petroleum added 1.5 percent.

The gains boosted broader markets. Hong Kong jumped 1.2 percent and Shanghai ended 0.9 percent higher.

Mainland Chinese traders were also cheered by news that global equities index compiler MSCI is considering quadrupling the weighting of Chinese large-cap shares in its benchmark Emerging Markets Index over the next two years.

Tokyo closed 0.4 percent stronger, Sydney rose 0.1 percent and Singapore put on 0.7 percent, with Bangkok and Jakarta also up.

But Taipei and Wellington were flat while Manila and Mumbai fell.

■ Key figures around 0810 GMT - Tokyo - Nikkei 225: UP 0.4 percent at 24,033.79 (close)

Hong Kong - Hang Seng: UP 1.2 percent at 27,816.87 (close)

Shanghai - Composite: UP 0.9 percent at 2,806.81 (close)

Dollar/yen: DOWN at 112.85 yen from 112.96 yen

Oil

Oil prices eased on Wednesday but were still heading for a fifth consecutive quarter of gains, driven by an impending drop in Iranian exports in the last three months of the year when global demand heats up.

Brent crude futures were last down 49 cents on the day at $81.38 a barrel by 1351 GMT, after having risen to as much as $82.55 on Tuesday, the highest since November 2014.

US crude futures were down 35 cents at $71.93 a barrel.

The United States will apply sanctions to halt oil exports from Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), from Nov 4. The pending loss of Iranian supply has been a major factor in the recent surge in crude prices.

Several big buyers of Iranian crude, such as a number of Indian refiners, have signalled they will wind down their purchases, yet the exact impact of the loss of Iranian barrels on the global market balance is not clear.

The so-called ‘OPEC+’ group, which includes the world’s biggest producer Russia, met over the weekend but did not see the need to add new output as the market is well supplied.

As a result, Brent is on course for its fifth consecutive quarterly increase, the longest such stretch for the global benchmark since early 2007, when a six-quarter run led to a record-high of $147.50 a barrel.

Gold

Gold prices fell on Wednesday as the dollar strengthened ahead of the results of a Federal Reserve meeting later in the day that is expected to raise US interest rates and hint at the outlook for future rate increases.

Gold is sensitive to higher interest rates because they tend to boost the dollar, making gold more expensive for buyers with other currencies.

They also push up US bond yields, reducing the attraction of non-yielding bullion.

A Fed rate hike - the third this year - in an announcement at 1800 GMT is anticipated and is therefore unlikely to shift gold prices, said FOREX.com analyst Fawad Razaqzada.

“If we break (technical resistance at) $1,205-$1,215, at a minimum we could go to $1,240,” he said.

Spot gold was down 0.5 percent at $1,194.87 an ounce at 1406 GMT, remaining close to a 19-month low of $1,159.96 reached last month.

US gold futures were also 0.5 percent lower at $1,199.10 an ounce.

Gold has fallen more than 12 percent from an April high as a vibrant US economy, expectations of higher US interest rates and fears of a global trade war have caused the dollar to rally.