LONDON (Reuters) - Encouraging soundings from Chinese factories from last month helped prop up world stocks first this on Monday, although there was little clarity on the U.S.-China trade talks and some anxiety about the stability of Germany’s coalition government.
After a Thanksgiving-related wobble on Wall St late last week, global stock indices had backed away from the record highs they came within a hair’s breadth of over the past seven days.
But Monday has seen some stabilisation and rebound. China’s Caixin/Markit manufacturing survey showed factory activity unexpectedly expanded last month at its fastest pace in almost three years.
That was enough to lift Shanghai stocks from three-month lows hit on Friday, even if the net gains on the day ended up being modest. Japan’s Nikkei outperformed in the region with gains of 1% as the yen weakened to its lowest since May against the dollar.
Hong Kong’s Hang Seng was also up smartly with gains of about 0.5%. U.S. stock futures were up about 0.2%, with 10-year Treasury yields climbing back above 1.8% for the first time in almost two weeks and the yield curve between 3 months and 10 years steepened to 24 basis points.
There were conflicting reports on progress in the trade war. China's Global Times newspaper reported on Sunday that Beijing's top priority in any phase one trade deal with the United States is the removal of existing tariffs on Chinese goods and that the United States was resisting that.
News website Axios also reported on Sunday, citing a source close to U.S. President Donald Trump's negotiating team, that trade talks between the United States and China were now "stalled because of Hong Kong legislation", following the bill signed by Trump on Wednesday backing Hong Kong protesters.
It was unclear whether these problems now meant the Dec. 15 deadline for further U.S. tariff rises on Chinese goods would be missed, although markets appear to assume that some postponement of that deadline is likely even without a comprehensive ‘Phase One’ agreement. Trump visits Britain on Monday ahead of the week’s NATO summit near London.
In Europe, 10-year German bund yields rose 5 basis points first thing amid anxiety over what a new leadership for the Social Democrat party meant for the durability of the standing coalition with Chancellor Angela Merkel’s Christian Democrats.
Two strong leftist critics of the coalition - Norbert Walter-Borjans and Saskia Esken - won a vote for leadership of the SPD on Saturday, although they insisted they would back the existing arrangement for the time being.
Euro/dollar was steady just above $1.10. European Central Bank chief Christine Lagarde testifies to the European Parliament later on Monday.
The latest opinion polls in the UK election, meantime, continue to a slight narrowing of the lead for Prime Minister Boris Johnson’s Conservatives over their nearest rivals.
Sterling was steady, however, with betting markets still putting a more than 70% chance that the Conservatives will secure an overall parliamentary majority on Dec. 12 and follow through with Brexit on Jan. 31 under the auspices of Johnson’s deal with Brussels.
Elsewhere, oil prices bounced back about 1% on Monday amid some indications OPEC may deepen output cuts at its meeting this week. Brent crude futures rebounded 66 cents, or 1.1%, to $61.15 a barrel after sliding on Friday.
On the European corporate news front, shares in Ted Baker, which just announced that the value of its inventory has been overstated, fell 8% at the open. Another likely volatile stock is Denmark’s Chemometec, which has appointed a new CEO after the unexpected departure of the incumbent triggered a 18% fall Friday. Its stock rebounded 14% first thing.
Deutsche Bank will also be closely watched with a Reuters exclusive indicating the lender’s role in the Danske money laundering scandal is being thoroughly investigated in the United States.
In Switzerland the ongoing dispute for Schmolz+Bickenbach could also make some sparkle. In M&A, the takeover battle for Just Eat is also in the spotlight after shareholder Cat Rock Capital said Takeaway.com offer should be accepted unless Prosus ups its bid to 925p.
Unicredit’s sale of a stake in Turkey’s Yapi could also give the Italian lender a little boost at the open.
— A look at the day ahead from EMEA Markets Editor Mike Dolan. The views expressed are his own —