March 27, 2018
Stocks Rebound on Trade Hopes; Treasuries Advance: Markets Wrap
U.S. stock futures extended gains and European and Asian equities rallied as investors began to recalibrate the chances of an all-out global trade war. The dollar strengthened as both the pound and euro retreated, while Treasuries rose. Contracts for the S&P 500 Index added to gains from Monday, when the gauge itself posted its biggest one-day jump since August 2015, while the Stoxx Europe 600 Index jumped the most in six weeks as every sector advanced. The euro weakened as economic confidence in the region continued to slide in March. Risk appetite is returning to global stock markets as the U.S. administration pursues dialog with various countries in a bid to resolve simmering trade tensions. In a tweet President Donald Trump said that talks are ongoing and that, in the end, “all will be happy.” “Our base case is that there won’t be an all-out trade war,” Craig MacDonald, Aberdeen Standard Investments’ global head of fixed income, said in a phone interview. “It’s a way of applying pressure to get some wins by Trump.” Still, it will lead to more volatility, MacDonald added. “Our sense is that they will get some wins rather than all out war, but it’s not something you can just dismiss. The tail risk is higher. In Asia shares were green across the board, with Japan’s Topix Index jumping the most since November 2016. South Korea’s won was the best performer among major currencies as Kim Jong Un was said to be making an unannounced visit to Beijing, his first known trip outside North Korea since taking power in 2011.
Germany at Odds With France Over Tariffs on U.S. Cars
Germany is willing to offer the U.S. concessions to stop President Donald Trump from slapping tariffs on European steel and aluminum, exposing a divide with France on how to avert a trade war. Germany is ready to discuss with the European Union in every respect measures to counter the U.S. threat to impose tariffs, according to a government official in Berlin. That flexible approach to protecting Germany’s export-led industry risks alienating other EU countries including France, which according to a French government official doesn’t want the bloc to make any concessions. With little more than four weeks until a temporary U.S. moratorium on steel and aluminum tariffs runs out, the EU is still trying to identify a common approach to Trump. At stake is potential disruption to a relationship involving total EU-U.S. trade worth some $640 billion in 2016. Germany is in favor of any EU deal covering new rules on tariffs for a series of products including cars, machinery, foodstuffs and pharmaceuticals, the first official said. That stance is not shared by France, which wants to focus on pressuring China over issues such as subsidies and overcapacity in the steel industry, the second official said. Both government officials asked not to be named discussing internal strategy.
Euro-Area Economic Confidence Extends Slide Into Third Month
Euro-area economic confidence continued its slide in March as the region showed signs of more moderate growth. Optimism slipped in the region’s five biggest economies, taking the overall index to its lowest in six months. It’s a third straight drop from a 17-year high reached in December, and comes as a separate survey by UBS Group AG shows more companies expect to pare back investment as a result of Brexit. The Commission report is the latest in a string of data suggesting economic growth in the currency bloc has cooled off after 2017 saw the fastest expansion in a decade. Purchasing Managers’ Indexes showed manufacturing and services activity in the euro area is growing at its slowest pace in 14 months, while investor confidence dropped amid mounting fears of a trade war. Still, European Central Bank officials have expressed confidence in the region’s outlook. President Mario Draghi told European leaders that investment is rising to levels not seen in at least a decade, private sector debt is falling, and capital ratios of healthy banks are almost 50 percent higher than at the start of the crisis. The Frankfurt-based institution predicts economic growth will accelerate to 2.4 percent in 2018 from 2.3 percent last year.
China’s Yuan Jumps to Highest Since 2015 as Trade Tensions Ease
China’s currency touched its highest level in almost three years amid signs that a trade war may be averted, before erasing gains as the greenback rebounded. The yuan surged as much as 0.6 percent to 6.2418 per dollar on Tuesday to its strongest level since a devaluation in August 2015. The currency closed down 0.1 percent, while the offshore rate dropped 0.35 percent at 6:35 p.m. in Hong Kong. Gains in the currency came as the Trump administration was said to be urging China to lower tariffs on cars and open its market to U.S. financial services as part of talks to resolve a rise in trade tensions. Adding to the bull case was last Friday’s announcement that China’s yuan-denominated bonds will be included in the Bloomberg Barclays Global Aggregate Index, which could prompt inflows of around $110 billion, according to Goldman Sachs Group Inc. “Market sentiment has become more optimistic versus last week amid signs that both sides are willing to talk,” said Gao Qi, Singapore-based strategist at Scotiabank. The currency is also gaining as the People’ Bank of China hasn’t signaled it will slow appreciation at any particular level, which may mean the yuan will test 6.2 per dollar soon, said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. The yuan is heading for a fifth straight quarter of gains, its best winning streak in four years.