Stocks rally but fears hold back real gains

BUMPER US EARNINGS EXPECTED AS TRADE WAR CONCERNS PERSIST

World stocks rose for a second consecutive week yesterday as investors prepared for an expected run of strong earnings in the United States, although fears about the US-China trade conflict kept gains in check and pushed the dollar higher.

Expectations of a bumper US earnings season and news that China’s overall global export growth beat expectations led European shares up yesterday with industrials and technology sending the pan-European STOXX 600 up 0.2 per cent.

Markets appeared broadly risk-friendly as a weakening safe-haven yen helped lift Japan’s Nikkei stock index 2 per cent. That followed the S&P500 hitting four-month highs on Wall Street overnight.

Yet fears about the impact of an escalating US-China trade war continue to cloud the outlook, encouraging investors into the safety of the dollar.

Data showing China’s trade surplus with the United States swelling to a record in June could further inflame a trade dispute with Washington.

“The record surplus with the US will inevitably get top billing ... China’s exporters have been front-loading exports to beat the imposition of tariffs, implying a relatively sharp drop in coming months,” ADM Investor Services market strategist Mark Otswald said.

With investors braced for the impact of tit-for-tat tariffs, one of China’s main indexes edged lower and China’s yuan headed for its fifth straight week of losses.

Global relief

While China has vowed to retaliate against the proposed new US tariffs — 10 per cent on $200 billion (Dh734 billion) of Chinese goods — the lack of a specific response to date has sparked global relief.

Yesterday, S&P500 e-mini futures rose to a five-month high on expectations of solid earnings growth among US firms despite the trade war concern.

Offering some reassurance to investors, US Treasury Secretary Steven Mnuchin said on Thursday the United States and China could reopen trade talks if Beijing was serious about structural reforms of its business practices.

“Some have suggested that Chinese officials are easing back their rhetoric with the intention of going back to the negotiation table, perhaps in light of increased concerns about economic impacts,” ANZ analysts wrote in a note yesterday.

The options available to Beijing include boycotting American goods, selling off US Treasury holdings or sharply devaluing the yuan.

In commodity markets, oil prices have had a wild week with both the main benchmarks suffering heavy losses as traders focused on the return of Libyan oil to the market.

Oil prices fell yesterday, with Brent crude dropping 35 cents to $74.10 (Dh271.95) a barrel and heading for a weekly fall of nearly 4 per cent.

A warning on spare capacity by the International Energy Agency (IEA) helped Brent recoup some losses on Thursday.

Copper eased about half a per cent yesterday and was poised for a fifth straight weekly fall, its longest decline since 2015, on concerns about weaker demand in face of the US-China trade dispute. The dollar, which has been a safe haven amid global uncertainty over trade, touched 112.795 against the yen, its highest level in six months, boosted by expectations of higher US inflation.