Global stocks rallied Friday as signs of progress in resolving two major overhangs—the U.S.-China trade spat and Brexit—bolstered investors’ optimism late in what is already a banner year for markets.
Investors poured into stocks and sold out of government bonds, figuring that prospects for corporate profits and economic growth were instantly brightened by the developments.
Japan’s Nikkei 225 jumped 2.6% on Friday, putting the benchmark on pace for one of its best days of the year. Hong Kong’s Hang Seng Index also gained 2.6%. The Shanghai Composite in China rose 1.2%.
In Europe, where Brexit has weighed on investors for more than three years, the pan-Continental Stoxx Europe 600 rose more than 1%, hitting an all-time high, and eclipsing its previous high water mark in April 2015, more than a year before the Brexit referendum.
Futures linked to the Dow Jones Industrial Average climbed 0.4%. That comes a day after the index for blue-chip stocks gained 0.8% on Thursday after President Trump said the U.S. and China were nearing a deal, while the S&P 500 closed at a record high. Mr. Trump has agreed to a limited trade agreement with Beijing that will roll back existing tariff rates on Chinese goods and cancel new levies set to take effect Sunday, The Wall Street Journal reported Thursday.
“The geopolitical risks thought to be strangling world economic growth, incredibly, just in the last 24 hours, seem to be closer to getting resolved in a big, big way,” said Chris Rupkey, chief financial economist at MUFG. “The outlook in 2020 looks better than it has in months.”
Mr. Rupkey said he expects stocks around the world to keep rallying and bond yields to rise further.
In the U.K., the FTSE 250 rose 4.5%, its biggest move since May 2010, after a resounding election victory for Prime Minister Boris Johnson’s Conservative Party overnight raised hopes for a quick divorce from the European Union. The pound was up 0.2% against the dollar on Friday, after gaining more than 2% late Thursday after exit polls showed Mr. Johnson gaining a clear majority.
“These results really make the U.K. equity markets investible again,’’ said Sue Noffke, head of U.K. equities at Schroders. ”Greater political clarity and less uncertainty really does reduce the level of risk for investors. In particular, international investors.’’
The U.K.’s 10-year yields rose close to 3 basis points to 0.855%, the highest since mid-June, compared with closing levels.
“Global conditions continue to improve, headlines on the phase 1 deal are pricing out uncertainty,’’ said Geoffrey Yu, head of U.K. investment office at UBS Asset Management.
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The advances in U.S.-China trade talks also sent oil up, with Brent crude rising 1.1% to $64.90 a barrel and WTI gaining 0.9% to $59.69 a barrel.
To be sure, previous breakthroughs in both trade and Brexit have proven to be false dawns. Trade tensions have dragged on for almost two years, while Britain’s divorce from the EU has been bogged down in the country’s Parliament since the June 2016 referendum.
Still, the elevated political uncertainty, which is also fueled by U.S. impeachment proceedings, hasn’t stopped many stock markets from enjoying an exceptional year.
The S&P 500 has rallied 26%, on pace for its best annual performance in six years. The rally has been underpinned by the Federal Reserve, which has cut interest rates three times this year to shore up growth, a reversal after four increases last year. Earlier this week, the central bank kept rates steady and showed no appetite to raise them soon.
The about-face has rippled through global markets. The Stoxx Europe 600 has risen 21% this year, while indexes in mainland China, Japan and Taiwan are up by double-digit percentages. The MSCI All Country World index has risen more than 20%.
Some observers are concerned about how much more markets could rally from here. Eli Lee, head of investment strategy at Bank of Singapore, said investors should expect modest returns in the coming years, given already-rich equity valuations. “Although the bull market won’t die in 2020, there are good reasons for return expectations to be moderate,” he said.
Investors were also awaiting U.S. retail sales data for November, due today at 8:30 a.m. ET. Economists are expecting a rise of 0.5% compared with October. Consumer spending has provided a key boost to the U.S. economy this year and today’s data will show if the trend continued last month.
—Anna Hirtenstein contributed to this article.
Write to Steven Russolillo at steven.russolillo@wsj.com and Joanne Chiu at joanne.chiu@wsj.com
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https://www.wsj.com/articles/markets-rally-as-trade-and-brexit-uncertainties-recede-11576206525
2019-12-13 08:51:00Z
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