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GLOBAL MARKETS-Trade hopes lift global stocks to one-week high, yuan softens

Published 30/08/2019, 10:50 pm
© Reuters.  GLOBAL MARKETS-Trade hopes lift global stocks to one-week high, yuan softens

* U.S. futures point to a firmer open

* China's yuan on track for worst month since 1994

* U.S., China to have face-to-face trade talk in Sept

* Dollar index climbs to one month high

* Gold, silver off recent highs

* FACTBOX-Month of bond market milestones: Karin Strohecker

LONDON, Aug 30 (Reuters) - World stocks climbed to a one-week high on cautious hopes for a rapprochement on trade between Beijing and Washington on Friday, though a perky dollar capped gains with China's yuan softening again, on track for its weakest month in 2-1/2 decades.

For most of August global stocks have reeled and fixed-income has shone as deepening concerns over global trade and clear signs of a slowdown, possibly even a recession, in the global economy loomed large over financial markets.

But the mood lifted after U.S. President Donald Trump said some trade discussions were taking place with China on Thursday, with more talks scheduled. commerce ministry also said a September round of meetings was being discussed by the two sides, but added it was important for Washington to cancel a tariff increase.

The MSCI All-Country World Index .MIWD00000PUS climbed 0.4% but is on track for a near 3% decline in August - only the second month the benchmark has spent in the red this year. It is the weakest August for the index since 2015.

European stocks on Friday extended the previous session's gains, with the pan-European STOXX 600 index .STOXX up 0.8% to trade at a near one-month high.

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"The trade war seesaw has certainly moved back in favour of riskier assets for now, with Trump and China supposedly holding a call yesterday," said Deutsche Bank (DE:DBKGn) strategist Jim Reid.

Gains were helped by a surge in German real estate firms which saw the country's DAX index .GDAXI add 1%. Tariff-sensitive automakers .SXAP rose 2.12% and technology stocks .SX8P gained 0.85%. .EU

The picture had been more mixed in Asia, where Chinese and Hong Kong stock markets dipped in and out of the red .HSI .CSI300 .SSEC . Arrests or detentions of pro-democracy activists in Hong Kong added to investor jitters, with the Chinese-ruled territory facing its first recession in a decade. Nikkei .N225 closed 1.2% up, while South Korea's KOSPI .KS11 jumped 1.8%. futures pointed to a firmer start to the day's trade, with E-Minis for the S&P500 ESc1 up 0.6% after a more than 1% gain on Wall Street overnight. .N

In fixed income markets, Italian bond yields were on track for their biggest monthly decline in more than six years after the anti-establishment 5-Star Movement and opposition Democratic Party reached an agreement on a coalition government.

Bond markets elsewhere were broadly taking a breather at the end of a stellar month that has seen prices rally and borrowing costs push deeper and deeper into negative territory.

Euro zone government bond yields hovered near record lows as data showed the bloc's inflation remained low at 1.0% in August - well below the European Central Bank's target and bolstering expectations for stimulus in September. Treasury yields were treading water with the benchmark 10-year Treasury US10YT=RR at 1.5197% after touching a three-year low of 1.443% earlier this week.

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It was still below two-year yields US2YT=RR at 1.5340%. Such an inversion was last seen in 2007 and correctly foretold the great recession that followed a year later.

Germany is considering lowering its corporate tax rate, while the U.S. government is thinking about issuing 50- and 100-year bonds in a bid to steepen the yield curve.

Recent economic data has also pointed to a global growth slowdown with business investment, manufacturing activity and exports all going south across major economies.

Investors were focused on a string of economic releases due over the weekend including China's official manufacturing survey, which would provide a good gauge of the real impact from the Sino-U.S. trade war.

GLUM YUAN

In currency markets, the dollar .DXY crawled higher to touch a one month high of 98.609 against a basket of six major currencies.

Yet the trade optimism failed to inspire China's yuan, which resumed its decline with spot yuan CNY=CFXS at 7.1506 against the dollar. The currency is on track for its weakest month since Beijing's currency reform in 1994 after it broke through the key 7 to the dollar level earlier in August.

"The yuan move back to 7 and beyond has been a distinct possibility for months. It is clearly down due to the tariffs," said Neil Mellor, senior FX strategist at BNY Mellon in London.

"It does help them to some extent to absorb the tariff costs - it is one of the few options they have. The fiscal option is limited after years of excess, and the monetary stimulus has already been unprecedented this year."

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Elsewhere, the euro EUR= plunged to a one-month low of $1.1033 against the dollar, as investors looked for aggressive easing by the European Central Bank and ignored doubts by some policymakers about the need for more stimulus.

The Japanese yen JPY= , a safe haven bet, edged 0.1% higher against the dollar JPY= to 106.39 and was on track for its biggest monthly gain in three months.

Sterling GBP= was steady at $1.2015 against the dollar GBP=D3 ahead of a crucial few days for parliament next week which could even result in a no-confidence motion and a new election. FRX/

In commodities, spot gold XAU= came off recent highs to trade at $1,526 an ounce. U.S. crude CLc1 slipped 72 cents to $55.99 a barrel while Brent fell 15 cents to $60.93 a barrel.

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