World stocks up on trade optimism, crude prices scale highest for year

Pound rises as Brexit divisions deepen

LONDON, Feb 18, (RTRS): Hopes for progress in Sino-US trade talks and expectations of policy stimulus from central banks lifted world stocks to 2-1/2- month highs on Monday, though European gains were held back by concern over the outlook for auto makers.

MSCI’s All-Country World Index rose 0.4 percent after Japan’s Nikkei closed up 1.8 percent at its high for the year and MSCI’s index of Asian equities rose almost 1 percent. Shanghai blue chips surged 2.7 percent to their highest finish in more than six months.

Wall Street futures suggested that US stocks would maintain last week’s gains when trading starts again on Tuesday, after Monday’s holiday.

The Dow and the Nasdaq had boasted eight consecutive weeks of gains on wagers the United States and China can resolve their protracted trade dispute.

Negotiations will resume this week, with US President Donald Trump saying he may extend a March 1 deadline for a deal. Both sides reported progress at ast week’s talks in Beijing.

The mood was more subdued in Europe, where a pan-European equity index inched to a four-month high. Gains were capped by auto makers, who were hit by data showing Chinese car sales fell 16 percent in January, their seventh straight month of decline.

The autos index, a bellwether for Europe’s economy, fell 0.4 percent. The industry was also weighed down by fears that a US Commerce Department report would lead to tariffs on imported cars and auto parts. German shares slipped 0.1 percent lower .

Bad economic data has fuelled expectations that the world’s most powerful central banks would deliver reflationary policies and provide support for markets.

The dollar was steady against the yen at 110.58, having backed away from a two-month top of 111.12.

Sterling rose after three consecutive weeks of losses as investors waited for the outcome of Brexit talks between Britain and the European Union.

British Prime Minister Theresa May plans to speak to every EU leader and the European Commission chief to seek changes to her EU withdrawal agreement, after another defeat by her own lawmakers last week.

That left the dollar a shade lower at 96.731 against a basket of currencies and away from last week’s top of 97.368.

On commodity markets, oil prices reached their highest this year, buoyed by OPEC-led supply cuts and US sanctions on Iran and Venezuela.

UK

London’s blue-chip stocks dipped on Monday, well away from their fourmonth highs, as investors bought out of defensive stocks while a stronger pound also weighed.

But consumer goods giant Reckitt jumped after a forecast-beating sales rise.

The FTSE 100 index was down 0.2 percent by 0935 GMT, lagging its European and Asian peers, while the midcap bourse gained 0.4 percent lifted by the pound.

Sterling rose as investors waited for the outcome of Brexit talks between Britain and the European Union, while the dollar took a hit as investors eyed risky assets on China-US trade optimism.

Defensive stocks, which are deemed to be a safe bet at times of uncertainties, were among the big fallers in early deals. Healthcare and consumer stocks led the fall with Accendo Markets analyst Michael van Dulken pointing to some profit-taking.

“I guess many people have been looking with the FTSE in a rising channel and nudging the ceiling of the channel, ‘let’s crystallise some of those profits before they get pulled away either by a trouble with trade talks or a Brexit problem’,” van Dulken said.

As a result, oil majors BP and Shell inched lower despite higher crude prices.

Reckitt Benckiser was a ray of sunshine, rising 4.5 percent on track for its best day since late-July as its fourthquarter sales growth topped estimates.

Another notable blue-chip faller was BAE Systems with a 1.2 pct dip after an Airbus official said Germany’s halt in exports to Saudi Arabia was preventing Britain from completing the sale of 48 Eurofighter Typhoon warplanes to Riyadh.

On the small cap index, convenience retailer McColl’s shares jumped 10.7 percent after saying it was on course for higher like-for-like sales in the first quarter and Petra Diamonds added 8.4 percent after naming a new CEO.

Mid-cap online trading platform Plus500 fell 4.4 percent after it confirmed late on Friday that it failed to disclose certain losses from customer trading due to a drafting error in its 2017 report.

Plus500 lost nearly half its value last week after a profit warning and a Times newspaper report of the accounting lag.

Europe

European stocks hovered around their highest level in four months on Monday as hopes of progress in US-China trade talks kept sentiment afloat while Wall Street was closed for a bank holiday.

The STOXX 600 closed up 0.2 percent, steadying at its highest level since Oct 10.

French car parts maker Faurecia climbed 1.3 percent after saying it hoped to outperform the market this year and reported margin expansion, though it warned of negative auto production growth in general.

Faurecia’s gain bucked the trend in the autos sector which fell 0.3 percent, lagging the market after data showed car sales in China fell for a seventh straight month.

Investors in the auto sector were also on tenterhooks after the US Commerce Department sent its report on national security and car imports to President Trump, setting the stage for possible tariffs.

Leading the market, Wirecard shares jumped 15.2 percent after German market regulator BaFin banned the establishment or increase of short positions in the stock.

Chipmaker AMS rose 3.5 percent after an article https://bit.ly/2toAQAg by Barrons saying the company is trying to diversify away from the slowing iPhone segment into other consumer areas and industrial applications.

The bank index inched up 0.4 percent, having risen sharply on Friday after European Central Bank board member Benoit Coeure said a new round of cheap multi-year loans to banks was possible.

That big reaction showed how desperate equity investors are for central banks to do something to help, Ian Williams, strategist at Peel Hunt said.

Asia

Asian markets were broadly higher on Monday as traders looked forward to the continuation of trade talks between Chinese and American officials in Washington this week.

South Korea’s Kospi jumped 0.7 percent to 2,210.89 and the Shanghai Composite index rose 2.5 percent to 2,748.92. Hong Kong’s Hang Seng was 1.7 percent higher at 28,382.13. Australia’s S&P/ASX 200 added 0.4 percent to 6,089.80.

Japan’s benchmark Nikkei 225 advanced 1.8 percent to 21,281.85. The country said its core machinery orders dropped 0.1 percent in December from the previous month, beating forecasts of a 1.1 percent decline. Shares rose in Taiwan and throughout Southeast Asia.

Oil

Oil rose for a fifth day on Monday, on track for its strongest first quarter in eight years, thanks to a growing belief among investors that OPEC’s supply cuts will prevent a build-up in unused fuel, though concern over China’s economy tempered gains.

Brent futures were last up 22 cents at $66.47 a barrel by 1557 GMT, having touched a 2019 high of $66.83, while US futures rose 35 cents to $55.94 a barrel.

Oil has risen nearly 25 percent so far this year and is on course for its strongest first-quarter performance since 2011, thanks largely to a commitment by the Organization of the Petroleum Exporting Countries and allies to cut output.

“Our numbers ... do tell us that we are looking at the tightest H1 crude balance in many years and, as such, a certain degree of price support does simply make sense for the time being,” consultancy JBC Energy said in a note.

Refiners around the world are also having to pay more to secure supplies of the medium, or heavy, sour crudes produced by Iran and Venezuela, both of which are under US sanctions.

The broader financial markets eased a little after data showing a drop in Chinese car sales in January raised concerns about the world’s second-largest economy.

Some of this weakness rubbed off on the oil market, but analysts said the overall trend in crude prices remained convincingly upwards for now.

“There are lots of ‘ifs’ and ‘buts’ that could have a profound impact on oil prices; just think of the unpredictable Donald Trump, Brexit, trade talks or an eventual pick-up in Libyan and/or Venezuelan production,” said PVM Oil Associates analyst Tamas Varga.

“Latest available data, however, point in the direction of a tightening market. It is not recommended to swim against the current and presently the ‘oil’ river is flowing north.”

Some analysts said the continued rise in US oil production could act as a drag on the current rally.

US energy companies last week increased the number of oil rigs looking for new supply by three to a total of 857, energy services firm Baker Hughes said in a report last Friday.

“We view the current price rise as exaggerated and see growing correction potential,” Commerzbank said in a note. “The fact that oil production in the U.S. is currently rising significantly more sharply than previously expected is being completely ignored at present.”

Currencies

Sterling gained on Monday after registering three consecutive weeks of losses as investors waited for the outcome of Brexit talks between Britain and the European Union.

A split in Britain’s opposition Labour Party – with seven politicians quitting on Monday in protest against Jeremy Corbyn’s leadership - will likely weigh on the pound as the move increases political uncertainty, according to Mizuho International.

Meanwhile, Prime Minister Theresa May is leading a last-ditch diplomatic drive to persuade EU leaders to save her Brexit agreement as she faces a rebellion from Cabinet ministers who want to stop the UK leaving without a deal.

Business leaders, increasingly fearful about the chaos that would ensue from a no-deal Brexit, are putting into place contingency plans across the board.

The pound climbed 0.3 percent higher at $1.2929. Against the euro it rose 0.2 percent to 87.30 pence.

Sterling rallied more than half a percent on Friday, helped by reports of some hedge fund buying, a conciliatory tone on Brexit from the Irish foreign minister and strong British retail sales published earlier in the day.

Broader currency markets were quiet with US markets shut for a holiday.

Some analysts said the split in Labour could help the pound.

“Prime Minister Theresa May is setting off to Europe to ‘re-negotiate’,” Commerzbank strategists wrote in a daily note.

“What a sad Sisyphean task! I cannot imagine that anyone assumes this might result in anything productive.”

Derivative markets were cautious with two-month pound risk reversals, a gauge of calls to puts on the British currency, hovering near three-month lows. It was a sign of investor caution about the pound’s outlook in the near term.