London: World shares touched their highest in nearly two years on Tuesday on predictions of future growth and bets the United States and China can end their damaging trade war.
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The world’s two largest economies are in talks on an initial deal to end an 18-month trade dispute that has damaged supply chains and upset global markets, with Washington due to impose a new round of tariffs on Chinese goods from December 15.
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A lack of clear news on the progress of talks has not deterred investors emboldened by a growing sense that the risks of a global recession have receded.
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Looser monetary policy from major central banks such as China have also given investors further cause to focus on equities.
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European shares climbed through the morning, with the broad Euro STOXX 600 adding 0.6 per cent to move to its highest since July 2015. Indexes in Frankfurt and London gained 1 per cent and 1.2 per cent respectively.
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Automakers, sensitive to both trade and growth, climbed 1.2% per cent on robust demand in Germany and France, with Volkswagen jumping 1.9 per cent.
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The MSCI world equity index, which tracks shares in 47 countries, gained 0.2 per cent to reach its highest since January last year. It is away from a record high.
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Wall Street futures indicated a positive start, too, adding 0.3 per cent.
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Investors said assumptions that an initial trade deal would be reached outweighed any creeping doubts that a lack of clear news on the talks suggested a lack of progress.
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A CNBC report overnight that Beijing was pessimistic about prospects of a deal had buffeted the dollar. But that was balanced by signs of detente, with Washington granting an extension to let US companies keep doing business with Chinese telecoms giant Huawei.
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China credit
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Unfazed by the lack of clarity on trade, markets focused on a growing sense of positive economic fundamentals ahead.
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Reflecting that growing bullishness, banks and asset managers have upgraded their outlooks for some equity sectors and regions for next year.
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“Consensus is assuming that there will be a cyclical upturn,” Stephane Barbier de la Serre, a strategist at Makor Capital Markets. “It’s like the market lowered its guard on the big risk metrics — and that has triggered a reweighting of funds from bonds to equities.” Loose central bank monetary policy also gave further reasons to be cheerful.
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Following its surprise cut on Monday to a closely watched lending rate, China’s central bank said it will step up credit support to the economy and push real lending rates lower — a move that could boost banks’ ability to increase lending and stoke consumption.
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The ripples from easier credit and higher domestic demand in China would likely be felt through supply chains in Asia, said Tim Drayson, head of economics at Legal & General Investment Management.
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“We are seeing signs that credit is becoming available to buy property and consumer durables, and that’s a positive,” he said.
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Australia’s central bank was among those also open to cutting rates. The Reserve Bank of Australia “agreed a case could be made” for another cut due to weakness in wages growth and inflation, minutes from a November meeting showed.
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MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.7%, with Shanghai blue chips gaining 1 per cent and Hong Kong’s Hang Seng up 1.4 per cent.
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Dollar stabilises
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In currencies, the dollar stabilised after three consecutive days of losses, with investors awaiting the release of the minutes of the US central bank meeting at end-October when policymakers had cut interest rates.
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The dollar index against six major currencies gained 0.1 per cent to 97.868, close to a two-week low after weakening 0.6 per cent in the last three days.
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“Trade headlines are dominating sentiment but in terms of the key event risk, the release of the Fed minutes will be a big one for market participants,” said Morten Lund, a senior FX strategist at Nordea.
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The British pound slipped 0.1 per cent to $1.2933 after hitting a one-month high overnight as polls showed Prime Minister Boris Johnson’s Conservative Party on course for victory at the December 12 election.
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