Global trade hopes lift shares, Turkey test awaits

LONDON (Reuters) – World markets calmed after signs of movement in the U.S.-China trade stand-off and ahead of major central bank meetings on Thursday, including emerging market trouble spot Turkey.

News that U.S. President Donald Trump’s administration had reached out to Beijing for a new round of trade talks had helped Asia rally after several torrid weeks that has included the region’s longest losing streak since 2000.

Shanghai, Tokyo, Jakarta stocks all gained around 1 percent and Hong Kong’s Hang Seng finished up 1.8 percent as China’s yuan also edged higher in the currency markets. [.SS]

Washington’s invitation got the thumbs up from Beijing and follows threats from Trump to impose tariffs on practically all imports from China in the absence of concessions.

Europe moved higher too, with 0.2-0.6 percent rises for German, French, Italian and Spanish shares offsetting a weaker FTSE in London which was dragged down by struggling oil and tobacco stocks. [.EU]

It helped MSCI’s 47-country world index toward a fourth day of gains and futures markets pointed to Wall Street inching up again too when it reopens. [.N]

“There have been a lot of obvious headwinds to risk appetite over the summer,” said State Street Global Markets’ head of global macro strategy Michael Metcalfe.

“I just get the sense this week we are beginning to see some light through the clouds.”

In the currency market, the dollar began to nudge higher again having been dampened by Wednesday’s soft U.S. wholesale price data, which had undermined the case for a faster pace of interest rate hikes by the Federal Reserve.

U.S. producer prices unexpectedly fell in August, recording their first drop in 1-1/2 years and denting talk of accelerating inflation following last week’s strong jobs and wage data.

The euro hovered around $1.1620, having gained around 0.6 percent so far this week. The yen weakened 0.2 percent to 111.47 per dollar as the trade optimism sapped safe-haven demand. [/FRX]

Sterling held near a six-week high of $1.3087 as Brexit-supporting lawmakers in British Prime Minister Theresa May’s party publicly pledged support for her to stay in power.

The European Central Bank and the Bank of England hold policy meetings on Thursday, but both are widely expected to leave interest rates unchanged, though the ECB could confirm when exactly it will end its stimulus program.

TALKING TURKEY

Arguable attracting more attention is a policy meeting by the Turkish central bank which is expected to raise its interest rates sharply at 1100 GMT to shore up its battered lira.

The lira has lost more than 40 percent of its value against the dollar this year, hit by worries over President Tayyip Erdogan’s grip on monetary policy and by a diplomatic spat between Ankara and Washington.

It took a 3 percent dive again as Erdogan called for a rate cut rather than a hike and blamed the central bank for the spike in inflation which is now almost 20 percent.

The lira crisis has also spread to some other emerging market countries with weak economic fundamentals such as sizable current account deficits.

“In theory, what the Turkish central bank does shouldn’t impact other markets. However, if it an example of an EM central bank reaffirming its credibility, then you could get some positive contagion from it,” State Street’s Metcalfe said.

The lira was last down 2 percent at 6.48 per dollar, albeit still well off its record low of 7.240 reached a month ago.

Among commodities, oil prices fell, reversing some of the strong gains from the previous session, as economic concerns raised doubts about fuel demand growth.

Brent futures hit $80 per barrel on Wednesday but eased in early London trading to $79.00, down 0.8 percent on the day.

Most euro zone government bond yields were little changed meanwhile, with the market largely sidelined ahead of the European Central Bank meeting.

Italy’s debt market was the outlier, with yields there rising ahead of a sale of up to 7.75 billion euros of bonds.

“Our sense is that we will get a dovish press conference from Draghi,” said Dean Turner, an economist at UBS Wealth Management in London.