NEW YORK: The dollar slid to a six-month low on Tuesday as progress on US-China trade tensions led investors to higher-risk assets, while a year-end rally that pushed global equity markets to record highs petered out on the last trading day of 2019.
The year was remarkable for investors, as many equity indices, long-term bonds, oil and gold posted double-digit gains.
US President Donald Trump said the Phase 1 trade pact with China would be signed on Jan. 15 at the White House, though confusion remains about details of the agreement.
Stocks for a second day in a row failed to rise on the news as they have for most of December, with hopes of an imminent deal a key factor for lifting a gauge of global equities to its best year since 2009, up almost 24 per cent.
MSCI’s all-country world index of equity performance in 49 nations fell 0.18 points or 0.03 per cent, to 564.2. The index is just under 4 percentage points from an all-time high set on Friday, when US stocks also posted record peaks.
The breakthrough in US-China trade talks and a British election earlier in December pointing to a smoother exit from the European Union have boosted investor sentiment, but the outlook for equities next year is not as buoyant, said David Kelly, chief global strategist at JPMorgan Asset Management.
“This is a year in which everybody will celebrate,” he said.
Going forward, however, it will be hard to achieve similar gains, with US equities likely to advance by mid-single digits annually for several years, Kelly said. International markets, especially emerging markets, are poised to do better, he said.
“The US stock market rally could continue but at some stage there’s going to be a significant correction, and the more it goes up the more it’s going to correct,” he said.
In shortened trading sessions ahead of New Year’s Eve celebrations, the pan-European STOXX 600 index closed down 0.08 per cent.
French, British and Spanish listed stocks lost between 0.1 per cent and 0.7 per cent, while Frankfurt and Milan bourses were shut for the year-end holidays.
On Wall Street, the Dow Jones Industrial Average fell 29.73 points, or 0.1 per cent, to 28,432.41 and the S&P 500 lost 0.77 points, or 0.02 per cent, to 3,220.52. The Nasdaq Composite added 11.73 points, or 0.13 per cent, to 8,957.72.
Emerging market stocks lost 0.29 per cent.
Bourses in Asia diverged. China mainland stocks gained 0.4 per cent after data showed manufacturing activity in the world’s second-largest economy expanded for a second straight month in December.
China’s Purchasing Managers’ Index (PMI) showing economic trends in the manufacturing and service sectors, was unchanged at 50.2 in December from November, but still remained above the 50-point mark that separates growth from contraction.
In Hong Kong, stocks fell 0.5 per cent as protesters geared up for pro-democracy rallies on New Year’s Eve.
Markets in Japan and South Korea were closed for a holiday.
The dollar’s slide came close to wiping out the year’s gains, as the pound and a clutch of trade-sensitive currencies rallied on improving US-China trade relations and the outlook for global growth.
The dollar also fell, as one of the biggest bets in the FX market for 2020 is shorting the US currency.
“We could be right at a turning point where global growth re-accelerates relative to US growth, and that could mean a weaker dollar over time,” Kelly said.
The dollar was strong for much of 2019 thanks to the relative outperformance of the US economy and investors’ preference for a safe-haven currency amid the trade dispute. But the dollar’s gains for the year shrivelled in December.
Investors bought up currencies linked to global trade, sending the Australian dollar, Chinese yuan and Scandinavian crowns to multi-month or multi-week highs against the greenback.
The dollar index, which tracks the greenback against a basket of six currencies, fell 0.251 point or 0.26 per cent, or 0.27 per cent, to 96.489 and the euro was last up 0.18 per cent, at $1.1217.
The Japanese yen strengthened 0.22 per cent versus the greenback at 108.65 per dollar, while Sterling was last trading at $1.3238, up 0.95 per cent on the day.
The weak dollar helped lift spot gold to its highest since Sept. 25 at $1,525.20 an ounce. The metal was set to post its biggest yearly gain since 2010, rising more than 18 per cent.
US gold futures settled up 0.3 per cent at $1,523.10.
The benchmark US Treasury 10-year note fell 7/32 in price to yield 1.9192 per cent.
Longer-dated Treasuries were on track to post their best return since 2014, after concerns about the slowing US economy prompted the Federal Reserve to cut interest rates three times this year. The move was a major reason for Wall Street’s gains.
Thirty-year bonds returned 17.15 per cent this year through Monday, according to Bank of America Merrill Lynch, while 10-year notes have returned 9.03 per cent.
Final data will not be updated until late on Tuesday.
Oil fell but was still on track for monthly and annual gains, supported by a thaw in the prolonged US-China trade row and Middle East unrest.
Brent crude settled down 67 cents at $66.00 a barrel, while US West Texas Intermediate (WTI) crude slid 62 cents to settle at $61.06 a barrel.
Brent has gained about 23 per cent in 2019 and WTI has risen 34 per cent, their best yearly gains in three years.
(Reporting by Herbert Lash and Karin Strohecker; additional reporting by Andrew Galbraith in Shanghai; Editing by Nick Zieminski and Dan Grebler)