LONDON (Reuters) - World markets hit their highest level in almost two years on Tuesday, in the slipstream of new records on Wall St overnight and putting MSCI’s all-country world index on course for 20%+ gains for only the third time in past decade.
While the mood music on the U.S.-China trade talks warming up once again, incoming global economic soundings are showing some stabilisation of global activity and business sentiment with the major central banks are now on hold after this year’s renewed policy easing.
Federal Reserve chairman Jerome Powell sounded an upbeat note on the state of the U.S. economy overnight, signalling the Fed was likely on hold after three interest rate cuts in 2019 but would “respond accordingly” to any material reassessment of the economic outlook.
Meanwhile, Chinese Vice Premier Liu He spoke with U.S. Trade representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin on Tuesday, according to China’s Commerce Ministry, and they discussed issues related to a "Phase One" deal while agreeing to maintain communication on remaining issues.
Adding to the buoyancy on world markets, the mega secondary listing in Hong Kong on Tuesday of $11.3 billion of shares in Chinese e-commerce giant Alibaba met good demand – with the stock rising almost 7% at one point from issue price and a small premium to its New York stock price.
A fresh wave of mergers and acquisitions activity has also lifted market optimism, with brokerage Charles Schwab agreeing on Monday to buy TD Ameritrade in an all-stock deal valued at $26 billion the same day as Louis Vuitton owner LVMH agreed to buy U.S. jeweller Tiffany for $16.2 billion.
With gains of 0.75% on Monday, Wall St’s S&P500 index clocked record intraday and closing highs and is now on course for its best year since 2013 with gains of 25% so far in 2019. The ViX volatility gauge sliced below 12% to its lowest levels since July.
S&P stock futures were up a further 0.4% first thing, even with Asia bourses and European stock futures relatively flat.
MCSI’s world index hit its highest since January 2018 earlier, before settling back to trade little changed. It’s now less than half a percent from its all-time high.
In Asia trade, Shanghai, HK and Seoul indices ended little changed but Tokyo’s Nikkei outperformed with gains of about 0.4% as the “safe haven” yen weakened further amid the generalised global market ebullience.
Dollar/yen briefly topped 109 to hit its highest since Nov. 12 before subsiding again as the dollar gave back some of its recent strength more broadly. Euro/dollar was a fraction firmer as it continued to cling onto $1.10.
There’s a heavy slate of U.S. economic reports later ahead of the Thanksgiving holiday there this week – U.S. November consumer confidence, the October trade balance and new home sales and September house price data are all out later.
Sterling was steady as traders monitored incoming opinion polls amid the UK election campaign. While poll averages point to a 40-50 seat majority for UK Prime Minister Boris Johnson’s Conservatives, one poll by ICM for Reuters late on Monday showed that lead narrowing to just 7 percentage points over the main opposition Labour Party.
The Conservatives, meanwhile, said they would hold another parliamentary vote on Johnson’s standing Brexit deal with the European Union before year-end if they won the Dec 12 election.
On the European corporate news front, Compass, which provides meals for office workers, reported strong margins. Irish building materials supplier CRH gave a reassuring trading update showed it was on track to beat its full-year profit obligations. Britain's Pets at Home Group is seen rising on its upbeat outlook.
The M&A spree in Europe continues: Bloomberg reports that Europcar is drawing interest from private equity players. It comes two weeks after a Reuters report that European investment firm Eurazeo is exploring a partial or full sale of its near 30% stake in Europcar. Europcar is seen rising 5%.
Shares of Spanish banks Liberbank and Unicaja were seen up between 4% and 5%, according to traders, after media reports that the two banks are trying to revive merger plans.
— A look at the day ahead from EMEA Markets Editor Mike Dolan. The views expressed are his own —