November 19, 2019 / 8:45 AM / 24 days ago

Daily Briefing: 'End of the decade' rally ploughs on

LONDON (Reuters) - The "end of the decade" global stock market rally continues to eke out new highs, with another record on Wall St overnight and MSCI’s all-country index notching up its best levels in 22 months.

A trader works on the floor at the New York Stock Exchange, November 18, 2019. REUTERS/Brendan McDermid

The only trepidation out there is that the renewed bullishness, captured by a wave of upgrades from banks and asset managers this week to their 2020 global equity outlooks, is wholly dependent on a trade deal being sealed by the United States and China by the next tariff deadline of Dec. 15.

The lack of fresh developments is being read variously as a worrying sign of snags by some or as a sign that the hard talking is under way by others. Investors appear happy to give the two sides the benefit of the doubt for now.

Even though CNBC reported overnight that the mood in Beijing was pessimistic about prospects of an agreement, positives included Washington issuing a new 90-day extension allowing U.S. companies to continue doing business with China's Huawei Technologies as regulators continue crafting rules on telecommunications firms that pose national security risks.

Away from the Sino-U.S. row, Japan's lower house of parliament on Tuesday approved a limited trade deal Prime Minister Shinzo Abe agreed with the United States, clearing the way for tariff cuts next year on items including U.S. farm goods and Japanese machine tools.

Shanghai stocks closed up 0.8% earlier, helped by Monday’s small interest rate cut, and Hong Kong stocks outperforming again with gains of 1.5% amid hopes the latest police standoff with student protesters could be defused without bloodshed.

Protesters wait to receive medical attention at the Hong Kong Polytechnic University campus during protests, November 19, 2019. REUTERS/Adnan Abidi

Hong Kong’s market has also been lifted by strong demand for Alibaba's mega listing, with reports that the firm stopped taking orders from prospective institutional investors for its $13.4 billion secondary listing in the city earlier than expected.

Overnight attention was also on the unscheduled meeting between U.S. Federal Reserve chair Jerome Powell, U.S. President Donald Trump and Treasury Secretary Steve Mnuchin.

While Powell’s readout was relatively anodyne, Trump used the opportunity to once again put pressure on the Fed chief to cut interest rates further and even discuss the idea of negative interest rates given the relative position of U.S. borrowing costs against the rest of the developed world.

“I protested fact that our Fed Rate is set too high relative to the interest rates of other competitor countries,” Trump tweeted late Monday. “Our rates should be lower than all others (we are the U.S.). Too strong a Dollar hurting manufacturers & growth!”.

The dollar’s DXY index, which has fallen 0.6% from last week highs at least partly on optimism about a trade deal, steadied first thing on Tuesday. It was a touch firmer against Japan’s yen, and slightly lower on the euro.

Sterling remains the star performer of the major currencies this week so far, with a wave of opinion polls all consistently putting Prime Minister Boris Johnson’s Conservative Party about 10-15 percentage points clear of its main rival and on course for an overall majority in Dec. 12’s parliamentary election.

The first of TV debate between the main party leaders is aired later on Tuesday, with the latest campaign news on Monday being Johnson dropping his corporate tax cut proposals to allow greater spending to woo voters.

The pound hit another 6-month high of 0.8522 per euro on Monday but has backed off that level since, remaining firm about 0.8544. It hit a one-month high just shy of $1.30 and hovered just below there first thing Tuesday. In Europe, stocks opened firmer on Tuesday.

Australia’s dollar was the biggest underperformer in the G10 FX space after minutes from the Reserve Bank of Australia’s latest meeting showed policymakers considered cutting interest rates this month.

— A look at the day ahead from EMEA Markets Editor Mike Dolan. The views expressed are his own —

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