Global stocks advance after Trump holds back on China retaliation
Global stocks rose and the dollar weakened on Monday, after US President Donald Trump’s latest escalation of his dispute with China stopped short of traders’ worst fears.
European markets gained, with the composite Stoxx 600 up 0.8 per cent at midday on Monday. London’s benchmark FTSE 100 and the CAC 40 in Paris added just over 1.2 per cent each. The moves take the Stoxx Europe 600, which lists the region’s largest companies, within sight of three-month highs. Germany was closed for a public holiday.
Mr Trump said, after markets closed in Asia and Europe on Friday, that he would revoke special trade privileges for Hong Kong in retaliation for Beijing’s decision to impose a controversial security law on the former British colony. But he failed to unveil any specific measures against the financial hub. Analysts said the phase-one trade deal with China appeared safe for now.
“China’s response to [the] US around the Hong Kong issue [will] probably be mild and [the] US-China phase-one deal is likely to hold,” said Johanna Chua, chief Asia-Pacific economist at Citigroup. Hong Kong “protests have been on a smaller scale since the news of the national security law, which also helps soothe market sentiment”.
Shares in Hong Kong and mainland China jumped on Monday in the first day of trading after the US president spoke.
Hong Kong’s Hang Seng index rallied 3.4 per cent while China’s CSI 300 gauge of Shanghai and Shenzhen-listed shares added 2.7 per cent, as investors deemed that Mr Trump had pulled his punches in a news conference on Friday.
China’s onshore traded renminbi was steady at 7.134 a dollar. The dollar index, which tracks the US currency against a basket of others, lost 0.3 per cent.
“Market participants are relieved that President Trump did not announce more meaningful policy actions to hit back at China at last Friday’s press conference,” said Lee Hardman, a currency analyst at MUFG.
“While President Trump’s speech was heated in rhetoric, it lacked specific measures that would directly impact China,” he added.
Bullish investors appear willing to look beyond some of the biggest civil disturbances in the US in decades, as Wall Street stocks were in line for a calm open on Monday.
US stock futures flatlined, flipping between minor gains and a decline. Trade recently implied that the S&P 500 would rise 0.07 per cent when Wall Street opens. The US benchmark closed up 0.5 per cent after Mr Trump spoke on Friday.
In Europe, a glimmer of hope flickered as the downturn in eurozone manufacturing activity showed signs last month of easing. The IHS Markit manufacturing purchasing managers’ index for the single-currency bloc hit a two-month high in May as governments relaxed strict regulations, with Italy showing the strongest rebound. The index nevertheless still shows a significant contraction in orders and output.
Investor sentiment in mainland China was also supported on Monday by data that showed manufacturing activity expanded in May for the first time since January.
The results of the Caixin-Markit purchasing managers’ index, however, indicated that the global effects of coronavirus would weigh on exports from the world’s second-largest economy.
Iris Pang, chief economist for Greater China at ING, said China’s recovery “should take a long time” due to weak global demand.
Elsewhere in Asia, Japan’s Topix added 0.3 per cent on Monday while South Korea’s Kospi index rose 1.8 per cent. In Australia, the S&P/ASX 200 gained 1.1 per cent.
In the UK, the spectre of Brexit going full steam ahead without any extension along with the risk that the economy will face disruption in the supply chain at the start of next year cast a cloud over the outlook for the pound.
“It looks like June is going to be a turbulent month for Brexit,” ING analysts James Smith and Petr Krpata said in a note on Monday. “There is still further scope for stress to be built into sterling, suggesting further downside for the currency. That’s in line with our end-June forecast for EUR/GBP of 0.91.”
The pound was recently up 0.25 per cent at €1.1145 against Europe’s single currency, with €1 buying 89.68p.
Oil prices trimmed earlier declines, with Brent crude, the international benchmark, reversing the drop to rise 0.6 per cent to trade at $38.11 a barrel. WTI, the US marker, was down 0.3 per cent to $35.32.
US government bonds slipped slightly, as the yield on the 10-year Treasury rose 0.017 percentage points to 0.66 per cent.
Additional reporting by Alice Woodhouse in Hong Kong