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Shares scale 22-month peak as focus turns to growth

Published 2019-11-19, 07:09 a/m
© Reuters.  GLOBAL MARKETS-Shares scale 22-month peak as focus turns to growth
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* MSCI world index climbs to highest since Jan 2018

* Euro STOXX 600 hits highest since July 2015

* Trade sensitive auto sector gains

* Wall Street futures up 0.3%

* 2020 growth in focus -investors

* Investors undeterred by lack of news on trade

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh (Updates prices throughout, adds China central bank)

By Tom Wilson

LONDON, Nov 19 (Reuters) - 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.

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 Dec. 15.

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.

Looser monetary policy from major central banks such as China have also given investors further cause to focus on equities.

European shares climbed through the morning, with the broad Euro STOXX 600 .STOXX adding 0.6% to move to its highest since July 2015. Indexes in Frankfurt .GDAXI and London .FTSE gained 1% and 1.2% respectively.

Automakers .SXAP , sensitive to both trade and growth, climbed 1.2% on robust demand in Germany and France, with Volkswagen VOWG_p.DE jumping 1.9%. MSCI world equity index .MIWD00000PUS , which tracks shares in 47 countries, gained 0.2% to reach its highest since January last year. It is away from a record high.

Wall Street futures ESc1 indicated a positive start, too, adding 0.3%.

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.

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 U.S. companies keep doing business with Chinese telecoms giant Huawei. CREDIT

Unfazed by the lack of clarity on trade, markets focused on a growing sense of positive economic fundamentals ahead.

Reflecting that growing bullishness, banks and asset managers have upgraded their outlooks for some equity sectors and regions for next year.

"Consensus is assuming that there will be a cyclical upturn," Stéphane 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.

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. 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.

"We are seeing signs that credit is becoming available to buy property and consumer durables, and that's a positive," he said.

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.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.7%, with Shanghai blue chips .CSI300 gaining 1% and Hong Kong's Hang Seng .HSI up 1.4%.

DOLLAR STABILISES

In currencies, the dollar stabilised after three consecutive days of losses, with investors awaiting the release of the minutes of the U.S. central bank meeting at end-October when policymakers had cut interest rates.

The dollar index .DXY against six major currencies gained 0.1% to 97.868, close to a two-week low after weakening 0.6% in the last three days.

"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.

The British pound GBP= slipped 0.1% 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 Dec. 12 election.

For Reuters Live Markets blog on European and UK stock markets, please click on: LIVE/

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