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GLOBAL MARKETS-Trade hopes, bumper Turkey rate hike feed the bulls

Published 13/09/2018, 10:18 pm
© Reuters.  GLOBAL MARKETS-Trade hopes, bumper Turkey rate hike feed the bulls
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* World stocks bounce on U.S.-China trade hopes

* Turkish lira sharply higher as central bank jacks up rates

* Shanghai, Tokyo, Jakarta shares all up 1 pct, FTSE slips

* Oil dribbles lower

* ECB to lay out new economic forecasts

By Marc Jones

LONDON, Sept 13 (Reuters) - Signs of movement in the U.S.-China trade stand-off and a bumper interest rate hike in emerging market trouble spot Turkey sent world shares higher on Thursday as risk appetite returned.

News that U.S. President Donald Trump's administration had put out feelers to Beijing for a new round of trade talks had rallied Asia after several torrid weeks that 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 2.5 percent as China's yuan also edged higher. .SS

Europe followed, with 0.2-0.6 percent rises for German, French, Italian and Spanish shares offsetting a FTSE in London, which was being held back by weak oil and tobacco stocks. .EU

Beaten up emerging markets also .MSCIEF TRY= made ground as Turkey's central bank made a rare show of independence, ignoring a fresh bashing from President Tayyip Erdogan and jacking up its interest rates by 625 basis points to 24 percent.

It all helped MSCI's 47-country world index .MIWD00000PUS 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."

Washington's invitation for trade talks received a thumbs-up from Beijing and probably came as a relief after Trump had threatened to impose tariffs on practically all imports from China in the absence of significant concessions.

In the currency market, the dollar had began to grind 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 day's big move was Turkey's lira which swung almost 6 percent in a wild few hours. It had fallen 3 percent after President Erdogan had called for rate cuts rather than rate hikes and then surged to be 3 percent up on the day when those calls were spectacularly ignored.

The day's other central bank meetings were far less eventful.

While a drop in safe-haven demand sent the yen down 0.2 percent to 111.47 per dollar JPY= , the euro hovered around $1.1620 EUR= as the ECB kept its interest rates deep in negative territory as widely expected.

Sterling GBP=D4 barely budged from near a six-week high of $1.3087 as the Bank of England keep Brexit-bound Britain's rates at 0.75 percent. main thing left for traders to navigate was the ECB's news conference, which this time will include a three-monthly update of its economic forecasts TURKEY

The lira's rally TRYTOM=D3 comes after a more than 40 percent slump against the dollar so far this year, hit by worries over President Tayyip Erdogan's hold over monetary policy and by a diplomatic spat between Ankara and Washington.

Inflation in Turkey is now almost 20 percent and the crisis has also spread to some other emerging market countries with weak economic fundamentals such as sizable current account deficits.

"Hiking today does get Turkey on the slow road to recovering some monetary policy credibility, and that is critical," said Aberdeen Standard Investments Head of Emerging Market Debt Brett Diment.

"If they hadn't hiked today then the real risk was that the lira would sell off sharply again and the country would swiftly head towards a balance of payments and even a banking crisis."

The lira was up at 6.1 per dollar, 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 LCOc1 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 and news conference.

Italy's debt market was the outlier, with yields rising there as traders absorbed almost 8 billion euros of new bonds as well as a fresh wave of noise on the 2019 budget. GVD/EUR

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

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