Traders at the New York Stock Exchange
Traders at the New York Stock Exchange.Photo for illustrative purposes only Image Credit: AP

London: A global equity rally fuelled by a dramatic surge on Wall Street on Wednesday ran out of steam on Thursday, setting US shares up for a weak opening. This came after a fall in Chinese industrial profits offered a reminder of the pressures on the world economy.

Still, world stocks managed to stay off near two-year lows, lifted by Wednesday’s 1,000 point-plus surge on the US Dow Jones index, triggered partly by the strongest holiday sales in years.

Stocks in Asia and Europe initially took their cue from this rally, pushing the MSCI world index — which tracks shares in 47 countries — 0.4 per cent higher, adding to a 2.3 per cent spike on Wednesday, and rising off a 22-month low hit on Christmas Eve.

But the gains halved by 1130 GMT as a pan-European equity index fell 1.1 per cent after a strong open and export-reliant German shares lost 2 per cent. “Yesterday was a blowout day for US equity markets which triggered optimism that this could be a key reversal day — but the upward momentum has not really followed through into Asia and Europe,” said Lee Hardman, an analyst at MUFG in London.

“One reason is that maybe the sharp move higher was driven by year-end rebalancing, which exaggerated the scale of the rebound, and now we have reverted to the trend which has been in place most of this month.”

While Japanese and Australian shares rose strongly, markets in mainland China as well as Hong Kong closed 0.4 per cent weaker after data showed earnings at China’s industrial firms dropped in November for the first time in nearly three years.

A report saying the White House was considering barring US firms from buying telecoms equipment from China’s Huawei and ZTE added to the gloom.

That overshadowed positive noises from the US government on trade talks with Beijing, its efforts to temper the White House’s recent broadsides against the Federal Reserve and a Mastercard Inc report that US holiday shopping sales had risen the most in six years in 2018.

“So far, we don’t see a shift in fundamentals. Trade tensions between the US and China remain the biggest unknown factor for 2019,” said Hussain Sayed, a strategist at online brokerage FXTM.

There were also renewed concerns in Italy, where troubled lender Banca Carige was denied a cash call by its largest shareholder, pushing its shares down 12.5 per cent.

Oil and gold go their different ways

* The concerns over a faltering global economy and signs of a crude oil glut pressured oil prices, sending Brent futures 1.7 per cent lower to $53.5 (Dh196.3) a barrel and partly reversing Wednesday’s 8 per cent jump. That rise was triggered by the Organisation of the Petroleum Exporting Countries (Opec) and its allies, including Russia, agreeing to limit output by 1.2 million barrels per day (bpd).

* US Treasury yields also reversed direction after rising sharply on Wednesday, dropping three basis points to 2.765 per cent.

* Another safe-haven, gold, was up 0.4 per cent, remaining just below a six-month peak hit earlier this week.

* Investors also bought yen, pushing the dollar 0.4 per cent lower versus the Japanese currency and forcing it to cede some of its 1 per cent overnight rise. Against a basket of currencies it was down 0.3 per cent. “We have started to see the yen regain its place as the safe haven of choice,” said MUFG’s Lee Hardman.