Global Stocks Hit 6 Month High On, Drumroll, Renewed "Trade Talk Optimism"

This is the part in Groundhog Day where Phil Connors kills himself again, and again, and again.

With stocks itching for a new excuse to levitate higher, they got that overnight when a Reuters report on fresh "progress" in the U.S.-China trade talks and renewed "optimism" in a trade deal helped propel world stock markets to a 6-month high on steered investors away from safe havens such as the Japanese yen, even as 10Y Treasury yields dipped modestly, as the same catalyst that has driven stocks higher on virtually every single day in the past quarter has continued to do so again and again, right out of the cult groundhog movie.

“It seems like bullish sentiment has decent grip for now and everyone is focused on the year to date performance of the equity markets,” said Naeem Aslam, chief market analyst at TF Global Markets (UK) Ltd in London.

Overnight Reuters reported that US negotiators tempered demands that China curb industrial subsidies as a condition for a trade deal after strong resistance from Beijing, marking a retreat on a core U.S. objective for the trade talks. According to the report, in the push to secure a deal in the next month or so, U.S. negotiators have become resigned to securing less than they would like on curbing those subsidies and are focused instead on other areas where they consider demands are more achievable, Reuters sources said. Those include ending forced technology transfers, improving intellectual property protection and widening access to China’s markets, the sources said. China has already given ground on those issues.

“It’s not that there won’t be some language on it, but it is not going to be very detailed or specific,” one source familiar with the talks said in reference to the subsidies issue.

Separately, on Saturday during the latest IMF conclave, Treasury Secretary Steven Mnuchin said the US is "hopefully very close" to final round of China talks; adding that the U.S. is open to facing enforcement penalties which work "in both directions." all of which helped spawn a fresh sense of optimism that a deal announcement was imminent.

In addition to the new trade optimism, thanks to the pleasant aftertaste from China’s credit flood in March, which exceeded all estimates, concern over global growth has also eased, fueling demand for riskier assets. MSCI’s gauge for equities saw its 100-day moving average rise above the 200-day equivalent as the index rose 12 out of the past 13 days, signaling potential for further gains.

Following a muted Asian session, the European Stoxx 600 Index erased an earlier loss and extended gains to session highs with bank stocks contributing most to the increase. A gauge tracking lenders climbs for a third session as it holds above a barrier it breached last week. The European index advances 0.3% as of 11:30 a.m. in London, reversing a decline of as much as 0.1% earlier. BNP Paribas rose 2.5%, adding the most to the increase by index points. Other banks also stronger: Credit Suisse +2.2%; ING Groep +1.3%, Unicredit +2.2%

S&P500 futures nudged up after spending most of the session in the red, as results from Goldman Sachs and Citigroup loomed. In Asia, equities headed for a fresh six-month high, propelled by markets in Japan and Korea, after the Bank of China released upbeat credit data, although earlier, Chinese stocks closed in the red, fading initial trade-related gains as expectations for rate cuts fizzled following the latest credit deluge.

With Chinese trade and lending data showing signs of improvement for the world’s second-biggest economy, investors are turning to the US earnings season to confirm the resilience of corporate America in the face of numerous challenges to growth. JPMorgan Chase posted strong first-quarter results last week, Goldman and Citi report today and Bank of America is up on Tuesday.

“The environment of easier financial conditions is beginning to have an impact on the broader economy,” Principal Global's Binay Chandgothia told Bloomberg TV. “If that is the case and growth does pick up, you’ll see an uptick in analyst expectations and earnings as well, which should help continue the rally.”

Bunds, US Treasury, and Gilts were confined to very tight ranges, as BTPs trade in a choppier range with peripheral yield spreads widening to core at the margin. G-10 currencies drift sideways in quiet trade, SEK marginally outperforms peers, CAD and NOK lag on commodities weakness.

In FX, South Korea’s won led an advance among emerging-market currencies, while Turkey’s lira underperformed as the unemployment rate climbed to the highest level in a decade. G-10 currencies drifted sideways in quiet trade, with the SEK marginally outperforming peers, CAD and NOK lag on commodities weakness. The yen dropped toward its 2019 low on Monday and the Swiss franc hit its weakest in nearly a month. The dollar also weakened slightly, allowing the euro to cement gains above $1.13.

In commodities, oil slipped after the longest run of weekly gains in three years as a report showed increased U.S. oil-rig activity. Oil provided big milestones last week, with Brent breaking through the $70 threshold and the U.S. benchmark posting six straight weeks of gains for the first time since early 2016. Brent crude oil futures was last off 23 cents at $71.32 while crude futures, the U.S. benchmark, eased 33 cents to $63.56.

Expected data include the Empire State Manufacturing Survey. Schwab, Citigroup and Goldman Sachs are reporting earnings.

Market Snapshot

  • S&P 500 futures little changed at 2,912.00
  • STOXX Europe 600 up 0.01% to 387.56
  • MXAP up 0.6% to 163.25
  • MXAPJ up 0.1% to 543.51
  • Nikkei up 1.4% to 22,169.11
  • Topix up 1.4% to 1,627.93
  • Hang Seng Index down 0.3% to 29,810.72
  • Shanghai Composite down 0.3% to 3,177.79
  • Sensex up 0.3% to 38,897.72
  • Australia S&P/ASX 200 unchanged at 6,251.44
  • Kospi up 0.4% to 2,242.88
  • German 10Y yield rose 0.5 bps to 0.06%
  • Euro up 0.2% to $1.1319
  • Italian 10Y yield rose 15.4 bps to 2.171%
  • Spanish 10Y yield rose 1.5 bps to 1.064%
  • Brent futures down 0.7% to $71.04/bbl
  • Gold spot down 0.3% to $1,286.95
  • U.S. Dollar Index down 0.2% to 96.80
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