World equities edge higher ahead of trade talks, Brexit

Oil prices slide, slow progress in trade talks counters OPEC cuts

NEW YORK, Feb 11, (RTRS): Stock markets globally edged higher on Monday as investors eyed the resumption of trade talks between the United States and China and watched for signs of progress on Brexit.

European markets rebounded from last week’s declines after Chinese shares rose 1 percent on the first day of trading after the week-long Lunar New Year holiday. On Wall Street, the Dow Jones Industrial Average rose 7.55 points, or 0.03 percent, to 25,113.88, the S&P 500 gained 3.92 points, or 0.14 percent, to 2,711.8 and the Nasdaq Composite added 17.81 points, or 0.24 percent, to 7,316.00.

Worries about a slowdown in global growth, the US-China trade dispute and the possibility of another US government shutdown have been foremost in investors’ minds. At the same time, Britain is due to leave the European Union in six weeks though it still has no exit plan in place. Data on Monday showed the British economy grew last year at its slowest since 2012.

“The risk remains that investors are unwilling to commit to a breakout until we see what emerges from USChina trade negotiations and Brexit,” said John Hardy, head of FX strategy at Saxo Bank.

China struck an upbeat note as the trade talks resumed, but it also expressed anger at a US Navy mission through the disputed South China Sea, casting a shadow over the prospect for improved Beijing-Washington ties.

The two sides are trying to come up with a deal before March 1, when US tariffs on $200 billion worth of Chinese imports are scheduled to increase to 25 percent from 10 percent.

Safe-haven bonds and the dollar have gained amid the prolonged uncertainty. The dollar reached its highest in six weeks against a basket of other currencies, rising for an eighth consecutive day as investors piled into the greenback.

Worries about Europe’s economic slowdown and falling inflation expectations dominated morning trade in debt markets.

The yield on Germany’s 10-year Bund, considered the risk-free benchmark for the region, held close to 0.10 percent after touching 0.077 percent on Friday, its lowest since October 2016. The European Commission downgraded its euro zone growth forecasts last week.

US benchmark 10-year notes last fell 8/32 in price to yield 2.659 percent, compared with 2.63 percent late on Friday.

A collapse in talks between US Democratic and Republican lawmakers has meanwhile raised fears of another government shutdown.

The rising threat to growth means equity markets will focus on earnings from major US companies for clues about the health of consumer shares. These include Coca-Cola Co, PepsiCo Inc, Walmart Inc, Home Depot Inc, Macy’s Inc and Gap Inc.

Analysts now expect first-quarter earnings for S&P 500 companies to decline 0.1 percent from a year earlier. That would be the first such quarterly profit decline since 2016, according to IBES data from Refinitiv.

Oil prices slipped on concern about slowing global demand and a pick-up in US drilling activity.

US crude was 0.8 percent lower at $52.31 per barrel. Brent was 0.2 percent lower at $61.97.

US

US stocks gave up early gains and were struggling for direction on Monday, as investors weighed the possibility of another partial government shutdown and trade talks between the world’s two largest economies resumed in Beijing.

Top Democratic and Republican negotiators on border security funding were scheduled to meet later in the day in a bid to reach a deal by a Friday deadline set by President Donald Trump to find a compromise.

The gains soon evaporated as the healthcare sector fell 0.21 percent, pressured by a more than 1.5 percent drop in the shares of UnitedHealth Group, Pfizer Inc and Merck & Co. The stocks were also the biggest drags on the blue-chip Dow index.

The trade-sensitive industrials sector held on to gains and were last up 0.59 percent, the most among the 11 major S&P sectors, boosted by Caterpillar Inc’s 1.01 percent rise.

At 12:42 pm ET, the Dow Jones Industrial Average was down 18.00 points, or 0.07 percent, at 25,088.33. The S&P 500 was up 3.39 points, or 0.13 percent, at 2,711.27 and the Nasdaq Composite rose 21.36 points, or 0.29 percent, to 7,319.56.

The benchmark S&P index is about 15 percent higher than its December lows, helped in part by a dovish Federal Reserve and largely upbeat earnings reports.

About 71 percent of the S&P 500 companies that have reported fourthquarter earnings have topped estimates, according to IBES data from Refinitiv. But analysts’ estimates for first-quarter earnings have turned negative for the first time since 2016.

Among other stocks, Electronics Arts Inc gained 5.1 percent, the most among S&P 500 companies, after analysts were upbeat about a strong start to the videogame publisher’s newly launched rival to “Fortnite”.

Rivals Take-Two Interactive Software Inc fell 3.1 percent and Activision Blizzard Inc, due to report results on Tuesday, dropped 5.7 percent.

Advancing issues outnumbered decliners by a 1.77-to-1 ratio on the NYSE and by a 1.62-to-1 ratio on the Nasdaq. The S&P index recorded 31 new 52-week highs and three new lows, while the Nasdaq recorded 55 new highs and 15 new lows.

UK

British blue-chip names bounced back on Monday buoyed by strength in bank and consumer shares, while a stronger dollar lifted companies with greater international exposure as a fresh round of Sino-US trade talks commenced.

The main index added 0.8 percent while midcaps were up 1 percent, after ending lower on Friday as fresh concerns over the Sino-US trade situation added to fears of a slowdown in the world economy.

Overseas, gains on Wall Street were led by industrial companies as a new round of talks between the United States and China piqued hopes for a trade deal.

Asia-focused bank HSBC rose 1.5 percent.

Travel group TUI’s London-listed shares advanced 5 percent to top the FTSE 100 leader-board as traders cited Bank of America Merrill Lynch resuming coverage with a “Buy” rating.

Imperial Brands was 2 percent higher after the tobacco group said its nonexecutive chairman Mark Williamson would step down. Larger rival British American Tobacco also rose 2.7 percent.

The gain in the FTSE 100, coming after three sessions of losses, marked a strong start to a week in which British Prime Minister Theresa May is due to update parliament on her progress towards a European Union divorce deal.

The market held up despite data showing the British economy had slowed in the final three months of last year, pushing growth in 2018 to its weakest in six years, as Brexit worries hammered investment.

The contraction, however, was as expected and came after economic growth forecast cuts by the Bank of England and the European Commission last week.

As the March 29 exit date ticks closer, a deal on how the world’s sixth-largest economy will leave the European Union is still in limbo and companies are reigning in spending until the fog clears.

May has rejected the idea of targeting a customs union with the EU, stamping out hopes that she could shift her Brexit policy to win over the opposition Labour Party.

“Clearly the Brexit discussions – and the need for a compromise to be forged – are a source for further concerns or an opportunity to quell the malaise with huge implications for all UK consumers, employees, employers and the general economy,” Raymond James analyst Chris Bailey said of the data.

After touching their highest since November on Chinese iron ore futures hitting record levels, metals stocks shed some gains to end up 1 percent, even as most base metals prices fell on global growth worries.

Among mid-caps, the biggest boost came from takeaway group Just Eat, which climbed 4.4 percent after its shareholder Cat Rock Capital Management urged the company to start merger talks and said it would benefit from a deal rather than relying on a new chief executive officer.

Metro Bank, whose stock has roughly halved in value following an accounting error, surged 6.5 percent stand among top mid-cap gainers following a Berenberg upgrade.

Among a handful of losers was Smith & Nephew which slid 3 percent after the Financial Times reported that it has held talks to buy US-based medical equipment maker NuVasive in a deal that would be worth more than $3 billion.

Small-cap KCOM rose 6.1 percent after the Telegraph reported that Virgin Media was considering a takeover bid, while logistics firm Connect Group rose 3 percent on a contract with Daily Mirror publisher Reach Plc.

Asia

Asian stocks were mostly higher on Monday as traders watched for developments on a fresh round of trade talks between American and Chinese officials in Beijing this week. Markets in China and Taiwan, reopening after a weeklong Lunar New Year break, posted broad gains.

The Shanghai Composite index jumped 1.1 percent to 2,646.45. The Kospi in South Korea advanced 0.2 percent to 2,180.73 and Hong Kong’s Hang Seng rose 0.3 percent to 28,038.09. Australia’s S&P ASX 200 was 0.2 percent lower at 6,060.80. Stocks rose in Taiwan but fell in Thailand, Singapore and Indonesia. Japanese markets were closed for a holiday.

Oil

Oil prices fell on Monday as an uptick in US drilling, a shutdown caused by a fire at a major US refinery and concerns about US-Chinese trade talks all overshadowed support from OPECled supply restraint.

Benchmark Brent oil were down 71 cents, or 1.14 percent, to $61.39 a barrel at 1445 GMT.

US West Texas Intermediate (WTI) crude fell $1.19 cents or 2.26 percent to $51.53.

“Oil prices are still trying to figure out what lead to follow. On the one hand, there is the OPEC+ cut story, now coupled with increasing issues around Venezuelan supply”, Viennabased consultancy JBC Energy said.

“At the same time, it has to be argued that a lot of the economic data that has been released over the last few days has really not been too encouraging, and USChinese trade talks are also seemingly not progressing very fast.”