World stocks scored an eighth straight session of gains and their longest winning streak of the year on Thursday, as reassuring trade data from China kept the previous day’s post-U.S. mid-terms risk rally rolling.
Traders were gearing up for the U.S. Federal Reserve meeting in a confident mood and the contrast to the last one in late September, when stock markets had just begun one of their most painful poundings in years, was stark.
European shares hit a one-month high after Asia and Wall Street had set similar milestones overnight [.T][.SS][.N], as solid results from SocGen, Commerzbank and caterer Sodexho soothed concerns about slowing corporate earnings. [.EU]
S&P 500, Dow and Nasdaq futures pointed to Wall Street giving back a bit of ground later, but the dollar .DXY, bond yields and MSCI’s world stocks index .MIWD00000PUS were all holding their gains.
The U.S. currency pulled slowly away from 2-1/2-week lows hit after Donald Trump’s loss of the House of Representatives in Tuesday’s mid-term elections reduced the chance of another blizzard of tax cuts. [/FRX]
That in turn made analysts and money managers more optimistic that the U.S. economy wouldn’t ultimately overheat and force the Fed to keep jacking up borrowing costs.
“We think we are close to the end of the appreciation of the dollar,” said fund manager Amundi’s Didier Borowski, who expects the Fed to pause its hiking cycle next year as the economy starts to slow.
“Usually we see a year-end rally (in stocks),” he added.
That rally may in fact be arriving early. Hong Kong’s Hang Seng .HSI advanced 0.9 percent and the Shanghai Composite Index .SSEC climbed 0.2 percent overnight, receiving a mild lift from stronger-than-expected October Chinese exports data.
With shippers rushing to get their goods into the United States before higher trade tariffs kick in next year, exports rose 15.6 percent from a year earlier, smashing forecasts for a modest slowdown to 11 percent.
Australian stocks , which tend to move with China’s fortunes, rose 0.5 percent, South Korea’s KOSPI .KS11 added 1.3 percent and Japan’s Nikkei .N225 surged 1.8 percent, almost matching Wednesday’s 2 percent Wall Street leap. [.N]
In the bond market there was plenty of activity too.
The 10-year Treasury note yield US10YT=RR eased slighted having risen as high as 3.25 percent but those on Europe’s equivalent German Bund benchmark kept climbing to a 2-week high.
Italian government bond yields were up to six basis points higher as the European Commission forecast the country’s 2019 budget deficit would be much higher than suggested by Rome, at 2.9 percent rather than 2.4 percent.
That pushed Italy’s bond spread over higher-rated Germany out to 290 basis points and Mizuho rates strategist Peter Chatwell warned of a possible further sell-off if Rome’s populist coalition government ramped up its anti-Brussels rhetoric again. [GVD/EUR]
Under EU rules, of which the Commission is the enforcer, Italy should cut its structural deficit next year to 1.2 percent of GDP rather than allow it to rise, and continue cutting it every year until it reaches a surplus.
“In our model, it doesn’t move fair value much from 300 bps (over Germany) but scary headlines are likely to cause a widening,” he added.
The euro largely took the Italian drama on the chin having already swung back to almost a cent down against the dollar overnight to just above $1.14.
Focus was also pivoting to the Fed. The U.S. central bank won’t hold a news conference this month but will, as always, publish a statement, which is expected to lay the ground for a fourth rate hike of the year next month.
“We think the Fed will keep raising rates until the data turns,” said Allianz Global Investors strategist Ann-Katrin Petersen in Frankfurt.
That means three further rate hikes to 3-3.25 percent by the end of next year, which would further stretch the gap between U.S. and European interest rates.
The dollar .DXY, which has soared this year on that divergence, was up 0.3 percent against a basket of top currencies and within striking distance of Wednesday’s one-month peak of 113.82 JPY= against the Japanese yen.
Trade war tensions have been another factor spurring on the greenback. China’s latest salvo in that feud on Thursday was a call for Washington to respect its choice of development path, state media reported President Xi Jinping saying.
Trump and Xi plan to meet on the sidelines of a G20 summit in Argentina at the end of the month. Meeting former U.S. Secretary of State Henry Kissinger in Beijing, Xi said he and Trump would have a “deep exchange of views”, the official Xinhua news agency reported.
In commodities, U.S. crude futures CLc1 edged up to $61.73 a barrel after falling to an eight-month trough on Wednesday.
Brent crude LCOc1 rose 0.2 percent to $72.20 a barrel following a loss of 1.4 percent the previous day.
Oil prices struggled after surging U.S. crude output hit another record and domestic inventories rose more than expected.