LONDON (Reuters) - In contrast to the end of 2018, world markets have resumed a powerful year-end rally that began at the start of the fourth quarter.
Following record highs for Wall Street’s S&P 500 on Friday, and its best day for more than two weeks, MSCI’s all-country world index surged to its highest on Monday since January of last year – less than 1% from its all-time high.
The picture remains the same – hopes for an imminent U.S.-China trade truce, sluggish economic data and earnings readings avoiding a major contraction, central banks remaining supportive with easy money policies and the prospect of higher fiscal spending from many major economies in 2020.
Adding to the cocktail on Monday, the People’s Bank of China cut a closely watched short-term interest rate for the first time in four years, knocking five basis points off its seven-day repurchase rate to 2.50%. The easing not only showed some additional support for the slowing Chinese economy but for some underlined an urgency to get a trade agreement done by the end of the year.
Shanghai stocks rose 0.6% and Hong Kong shares gained more than 1% as police moved in on a university campus defended by street protesters during another violent standoff on Monday.
China’s offshore yuan weakened. Tokyo’s Nikkei was up 0.5% and Seoul’s Kospi benchmark closed little changed.
With investors polled recently by Bank of America Merrill Lynch claiming economic optimism was at its highest in 18 months, many fund managers have been upgrading their outlooks.
JP Morgan Asset Management on Monday said it had upgraded its outlook for global stocks, claiming its expectation of a U.S. recession over the next year or so had dropped from an evens chance to less than 30%. It said its favoured part of the global equity market was now emerging markets and U.S. large-cap stocks.
In Europe, stocks were also expected to rise on Monday, with the STOXX600 index 2% under its April 2015 record high.
In euro zone bond markets, there has been a re-evaluation of risk. Peripheral euro zone government bond spreads widened against Germany’s at the end of last week, with Spain underperforming amid inconclusive coalition talks; Spanish financial stocks were hit by the prospect of populist left-wing party Podemos being brought into government with a policy of greater taxation on banks.
Sterling continued to gain ground as opinion polls showed a commanding lead for PM Boris Johnson’s Conservatives before a Dec. 12 election -- polls of polls pointed to an overall parliamentary majority of more than 30 seats on current projections. The pound reached its highest since May against the euro and its highest since Nov. 1 against the dollar.
In emerging markets, Chile’s peso gained 3% after lawmakers bowed to protesters and agreed late on Friday to hold a referendum on replacing the country’s constitution. On Friday, the currency jumped 4%.
Turkey’s lira gained 0.2% and on Saturday President Tayyip Erdogan predicted interest rates would continue to fall and inflation would reach single digits in 2020.
On Sunday, setting the price range for Saudi Aramco’s IPO showed the oil state firm was valued at $1.7 trillion – less than the $2 trillion goal set by the crown prince but still in the running for the world’s largest ever.
In European corporate news, Euronext and Spanish market BME were holding talks about a tie-up which could speed up consolidation in the sector after a battle for the Oslo exchange.
A trading update by Kingspan stressed the weakness of the UK market and could weigh on its shares. BT and other companies on Labour’s nationalisation list will remain closely watched.
The IPO of the French national lottery was drawing subscriptions from retail investors worth 1 billion euros. If it goes smoothly this week, more French government asset sales may come, among them airports operator ADP and a stake in power group Engie.
— A look at the day ahead from EMEA Markets Editor Mike Dolan. The views expressed are his own —