November 5, 2019 / 8:34 AM / 3 months ago

Daily Briefing: Head of steam

Traders work on the floor at the New York Stock Exchange, November 4, 2019. REUTERS/Brendan McDermid

LONDON (Reuters) - The global stock market surge is building into the end of the year. Record-high Wall Street equities are now on course for their best year since 2013 with gains of more than 20%. MSCI’s all-country index is advancing for its ninth out of 10 trading days to its highest since February last year.

Optimism about a trade truce between the United States and China this month is front and centre of the renewed optimism, with some more meat being put on the bones of what’s expected to be a phase-one agreement. China is pushing U.S. President Donald Trump to remove more tariffs imposed in September as part of this agreement, according to overnight reports; Beijing and Washington spoke of progress in the talks and U.S. Commerce Secretary Wilbur Ross said licenses for U.S. companies to sell components to China’s Huawei Technologies will come “very shortly”.

The tariff war has been one of the biggest depressants on the industrial economy all year, and there’s already signs of pressure easing. Global readings of the October manufacturing business surveys showed the aggregate ticked up for the third month in a row last month to show an expansion in factory activity again. Forward-looking indicators from the survey, such as the new-orders component, are moving into positive territory for the first time since April, according to JPMorgan. Barclays said the global reading was still close to its weakest since the banking crash of more than decade ago, but the tepid recovery in new orders sent a tentative sign the global industrial recession was at least dissipating.

That’s also reflected in Citi’s economic surprise index for the G10 major economies, which ticked back into positive territory on Monday for the first time in a month. The U.S. yield curve is also signalling that the worst is over; the curve from three months to 10 years is steepening again in positive territory to its best levels since March. Even U.S. earnings growth is flirting with a positive reading for the third quarter despite pre-season forecasts for an aggregate profit contraction of more than 3%.

After the record U.S. highs, Asia’s major markets followed suit. Shanghai and Hong Kong rose more than 0.5%, with the trade truce hopes lifting China’s yuan to its strongest level against the dollar since mid-August — it broke through 7 per dollar first thing in London today for the first time in almost three months. The move even followed a 5-basis-point cut in the People’s Bank of China’s one-year lending facility to 3.25% after the U.S. Federal Reserve’s rate cut last week. Australia’s dollar, often seen as a more liquid proxy for Chinese and global trade speculation, rose 0.4% on Tuesday after the Reserve Bank of Australia left its key policy rates unchanged. The dollar’s DXY index, which has been under pressure over the past month, slipped back again from early highs on Tuesday.

Euro/dollar gained after an early dip toward $1.11. Sterling steadied after Monday’s retreat. European stock futures were up about quarter of a percentage point before the open, set to extend gains to near two-year highs from Monday as they got swept up in the global risk rally. More than half of European companies have already reported results in the latest earnings season and most of them have beaten analyst estimates. According to UBS, a net 10% of companies beat forecasts, in line with the long-term average of 11%.

In European corporate news, shares in SAP were up 1.8% in pre-market trade after Europe’s most valuable technology firm said it would return an extra 1.5 billion euros to shareholders next year. Hugo Boss reported falling sales in the United States and Hong Kong but said sales and operating profit would recover in the fourth quarter, helped by more modern stores and growth in mainland China and ecommerce. Its shares were up 1.4% in early trade. Germany’s biggest residential property firm, Vonovia, posted a positive outlook for 2020, sending its shares up more than 1% in early trade.

Post-result gains were expected for meal-kit delivery company Hellofresh, Primark owner AB Foods, Dufry and automotive parts supplier Schaeffler. Pandora’s update, however, was a big disappointment. Its shares were seen falling 15% to 20% after the Danish jewellery maker warned of a steeper fall in sales this year than previously expected and its third-quarter adjusted operating profit lagged forecasts amid weakness in key markets and turmoil in Hong Kong. Imperial Brands was seen opening down as much as 4% after its fiscal-year operating profit fell short of analyst estimates. Traders said its outlook was cautious, but the tobacco company kept its dividend policy.

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

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