Euro zone’s bond yields boosted slightly by fresh US-China hopes
Trade optimism lifts world shares
LONDON: Euro-zone bond yields rose slightly in early London trading yesterday, as positive trade war developments trumped last week’s weak euro zone data. Market sentiment was slightly lifted by news over the weekend that China was seeking to raise substantially the upper limits for intellectual property violation fines. “The intellectual property transfers is a big sticking point in the negotiations because the US has for a long time been accusing China of stealing its intellectual property,” said Peter McCallum, rates strategist at Mizuho.
“That would be quite a big breakthrough if there was a material change in how China dealt with it,” he said. US national security adviser Robert O’Brien said on Saturday an initial “phase one” trade agreement with China was possible by the end of the year. Officials on both sides have said a second phase agreement looked less likely. Most euro-zone government bond yields recovered from lows hit on Friday when euro zone data showed business growth almost ground to a halt and the services industry grew at a weaker pace than expected.
The German benchmark 10-year bond yield was up two basis points, recovering from its biggest intraday fall of the week last Friday. Over the weekend, Fitch ratings agency kept Portugal’s rating as BBB, with outlook positive, and Austria at AA+, also with a positive outlook. The spread between German and Portuguese 10-year yields, which widened to its most in two months last Friday, started to narrow again, down to 75.1 from highs of 77.5. The Irish 10-year yield was down slightly, at 0.082% .
German Ifo Business Climate Index data for November is due at 0900 GMT. Reuters polling suggests a slight improvement is expected. Mizuho’s McCallum said the market was “very trade-focused” at the moment and therefore that the data was unlikely to significantly move yields. “A weak number would confirm the weakness in German manufacturing that’s been evident for a long time. Unless there’s a massive upside surprise I don’t think it will feed too much into the market at the moment,” he said.
Trade optimism Meanwhile, world shares staged a cautious rally yesterday as investors held out for some progress in US-China trade talks, while the dollar dipped after its latest rally on the back of strong US economic data. The MSCI AllCountry World Index, which tracks shares across 47 countries, was up 0.2%. European shares rose for the second straight session following reports that Washington and Beijing were nearing a trade agreement. The panEuropean STOXX 600 index was up 0.7% at 0837 GMT, led by trade-sensitive miners.
Britain’s FTSE100 index was up 0.7%, Germany’s DAX rose 0.5%, and France’s CAC40 index was up 0.6%. A Chinese state-backed tabloid said yesterday China and the United States were “very close” to an initial trade agreement, adding to optimism from Friday, when the presidents of both the countries reiterated their desire for a deal.
China said on Sunday it would seek to improve protections for intellectual property rights, including raising the upper limits for compensation for rights infringements. “China being prepared to look at intellectual property is obviously the catalyst for a nice move higher, or a return to the highs earlier this month,” said Michael Hewson, chief markets analyst at CMC Markets in London.
Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan bounced 0.7%, after losing 0.4% last week. Japan’s Nikkei firmed 0.7%, while Australian stocks rose 0.5% and Shanghai blue chips 0.3%. E-Mini futures for the S&P 500 added 0.2%. On Saturday, US national security adviser Robert O’Brien said an initial trade agreement with China is still possible by the end of the year, though he warned Washington would not turn a blind eye to what happens in Hong Kong.
The comments add to worries that a Chinese crackdown on anti-government protests in Hong Kong could further complicate the talks. “The fact that talks are still happening remains a positive,” said Robert Rennie, head of financial market strategy at Westpac. “Markets are showing some signs of tiring of the steady drip feed of upbeat comments from US officials and no signs of a final agreement looking likely.” He said seeks had passed since the “phase one” deal was agreed in principle yet there was still no deal in place. “Key for markets will thus be whether the Dec. 15 tariffs covering approximately $156 billion of largely technology imports are postponed and whether a deal can be signed ahead of that date, with press suggesting that these tariffs will be delayed to give negotiators more time.”
‘Least dirty’
In currency markets, the dollar dipped after its rally on Friday when US manufacturing surveys beat forecasts, just as European Union numbers disappointed. Against a basket of currencies, it last traded down 0.05% at 98.226, after gaining 0.3% last week. “US economic data outperformed, highlighting again the resilience of the economy and that while global growth has slowed, it remains the least dirty t-shirt in the laundry basket,” said Tapas Strickland, a director of economics and markets at National Australia Bank. “For the EU data, the important takeaway was the ongoing decline in the manufacturing sector is now spreading to the larger services sector, a worrying sign for the global economy.”
European Central Bank President Christine Lagarde on Friday called on euro zone governments to strengthen domestic demand. Federal Reserve Chair Jerome Powell speaks later on and is expected to underline the steady outlook for rates given the better economic figures. The euro was flat $1.1024 yesterday, having breached chart support at $1.1040, while the dollar edged up to 108.87 yen. Spot gold was 0.3% lower at $1,457.44 per ounce. Oil prices rose. Brent crude futures firmed 0.19% to $63.51, hile US crude rose 0.1% to $57.83 a barrel. — Agencies