Global markets’ optimism grows on trade and stimulus

Higher-risk assets such as equities and emerging markets rose almost across the board at the expense of safe-haven plays such as gold and bonds, as political risk appeared to ease in Britain, Italy and Hong Kong.

US President Donald Trump’s firing of hawkish national security adviser John Bolton was also seen as a positive, as it could potentially lead to an easing of tensions with Iran.

There are hints China will go full-throttle with growth stimulating measures following a raft of dismal data: having already eased banks’ cash curbs, it has now scrapped quota restrictions on two inbound investment schemes in order to lure more foreign capital.

Investors are also awaiting the European Central Bank’s meeting on Thursday at which it is expected to cut interest rates and unveil more bond buying, though policymakers’ comments have recently raised doubts about the extent of stimulus that could be delivered.

“We’re seeing yields backing up and safe havens and defensive equities underperform so we are seeing a bit of rotation. I don’t think it’s a structural shift, it’s just that markets went too far and too soon, and we are seeing alleviation of that move,” said Justin Onuekwusi, a fund manager at Legal & General Investment Management.

“The market is being driven by two extremes: one if we get further deceleration in trade, the probability of recession becomes quite high. But if we get a (Sino-U. S. trade deal) we could see confidence coming back,” he added.

By 0830 GMT, MSCI’s world equity index was up 0.3 per cent following 0.5-1.5 per cent gains across Asian bourses, including Tokyo Seoul and Hong Kong while a pan-European equity index rose 0.7 per cent to five-week highs.

Wall Street stocks inched higher early Wednesday after China said it would pull some US products from its tariff list, an apparent olive branch ahead of trade talks set for next month.

Investors also have taken heart from a shift in the bond market led to higher returns after slumping Treasury yields in August raised recession worries.

Early trading continued the market’s meandering trend this week, which has been relatively light on economic data and corporate news.

Around 15 minutes into trading, the Dow Jones Industrial Average was up 0.2 per cent at 26,964.16.

The broad-based S&P 500 edged up 0.1 per cent at 2,983.22, while the tech-rich Nasdaq Composite Index gained 0.2 per cent to 8,103.03.

Big bet on Fed and ECB action

Expectations the ECB will push interest rates deeper into negative territory have weighed on the euro, which has shed 3 per cent since June.

But some policymakers have played down the prospect of sizeable asset purchases, and analysts cited a report that the ECB may delay quantitative easing and tie it to upcoming economic data.

That alongside signs Germany might eventually ease its long-held opposition to loosening budget rules, lifted bond yields across the bloc.

Finance Minister Olaf Scholz said on Tuesday that Germany could counter economic crises by injecting billions of euros into the economy. That lifted Germany’s 30-year borrowing costs above zero for the first time in over a month while 10-year bond yields too are 20 basis points above record lows reached a week ago.

“The recent market moves illustrate that expectations maybe went a bit too far, and with the ECB hawks on parade, doubts were raised on whether the ECB could meet the high expectation,” Jan Von Gerich, chief analyst at Nordea, told the Reuters Global Markets Forum.

The US Federal Reserve is expected to deliver a 25 basis-point cut when it meets next week, though any hopes of a 50 bps cut have receded almost to zero.

On commodity markets, Brent futures hovered near their strongest in six weeks, despite small losses on Tuesday after the sacking of Bolton as it raised the prospect of Iranian exports returning to the market.

Gold prices snapped a four-day losing streak to rise around 0.3 per cent but they have shed more than 4 per cent, or over $60, since scaling a more-than six-year peak of $1,557 on September 4.