Global Markets: Investors unwind bearish bets as optimism grows on trade and stimulus

Investment Guru India

By Sujata Rao

LONDON- World stocks rose for the sixth straight day on Wednesday and bond prices fell as investors continued to unwind safety bets, encouraged by hopes of a resolution to the Sino-U.S. trade standoff and signs Europe may be preparing to ease budget spending rules.

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.

U.S. 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 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% following 0.5-1.5% gains across Asian bourses, including Tokyo Seoul and Hong Kong. A pan-European equity index rose towards five-week highs while futures implied a slightly firmer open on Wall Street.

Currency markets too reflected the risk-on mood, the dollar strengthening 0.2% to 107.795 yen, its highest in six weeks, and the British pound hovering near six-week highs of $1.2385 hit earlier in the week.

The yen had rocketed towards a 2019 high in August as investors fretted about recession and market selloffs. Forex traders often buy the yen in times of uncertainty because of Japan's vast current account surplus and because Japanese investors usually bring money home when global markets tank.

But since the start of September it's fallen almost 2%.

"Yen weakness has been reinforced overnight by speculation that China will implement further measures to ease the negative economic impact from the trade war with the U.S.," MUFG analysts told clients.

Broader risk appetite fed through into gains for both the Australian and New Zealand dollars, which were up 0.1% each. Emerging currencies touched the highest since mid-August, according to an MSCI index.

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