January 16, 2020 / 12:59 AM / 9 days ago

World stocks scale record peak on U.S.-China trade deal

TOKYO (Reuters) - World stocks inched to a record high on Thursday after the United States and China signed a deal to defuse their 18-month trade war, which has weighed on global economic growth and hampered investments.

Investors look at screens showing stock information at a brokerage house in Shanghai, China January 16, 2020. REUTERS/Aly Song

MSCI’s broadest index of world stocks .MIWD00000PUS firmed 0.04% in early trade after closing at record level on Wednesday while its index on Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.10%.

Japan's Nikkei .N225 rose 0.14% while Australian shares were 0.6% higher.

U.S. President Donald Trump and Chinese Vice Premier Liu He on Wednesday signed a deal that will roll back some tariffs and see China boost purchases of U.S. goods and services by $200 billion over two years.

The deal does not address structural economic issues that led to the trade conflict, and does not fully eliminate the tariffs while the $200 billion purchase targets look daunting to achieve.

Yet it reduced uncertainties that have beset financial markets.

“Whether somebody looks at this as big progress or little progress, it is something tangible and so the arrow is pointing in a direction that the market is comfortable with,” said Chuck Carlson, chief executive officer of Horizon Investment Services at Hammond, Indiana in the United States.

The S&P 500 .SPX closed at a record high of 3,289.3 points, up 0.19%, with gains fairly small after the market has rallied for months on hopes of a deal.

The index was dragged down by fall in financial shares following downbeat earnings from Bank of America (BAC.N) and Goldman Sachs (GS.N).

“While the trade deal has provided a relief, there wasn’t any positive surprises for markets. For shares to rise further, we need more evidences of improvement in the real economy and earnings,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.

Bond yields dropped as a boost from the trade deal failed to offset pressure from low U.S. producer price inflation data, which highlighted persistently low inflationary pressure.

The price index rose less than expected in December to cap 2019 with rise of 1.3%, lowest since 2015.

The 10-year U.S. Treasuries yield slipped to one-week low of 1.786% US10YT=RR compared with a high of 1.900% last Thursday.

Weak inflation was evident also in UK where consumer price inflation slowed to 1.3%, its slowest rate in three years.

The data fanned bets the Bank of England will cut interest rates at the end of this month, bringing Britain’s currency under further pressure briefly.

The pound last traded at $1.3040 GBP=D4, having managed to recover a tad from its three-week low touched earlier this week.

The Swiss franc held firm, having rising to its strongest against the dollar in over a year and its highest against the euro in almost three years after the United States added Switzerland to its watchlist of currency manipulators.

Washington’s decision led traders to think it will become difficult for the Swiss National Bank to intervene to weaken the franc in the future.

The Swiss currency last stood at 0.9637 franc per dollar CHF=, near Wednesday's high of 0.9631.

In contrast, the Chinese yuan hovered just below its 5-1/2-month high touched earlier this week after Washington dropped its currency manipulator label on China.

Coupled with the trade deal, warmer ties between the two countries are seen as positive for the Chinese economy and its currency.

The offshore yuan stood at 6.8860 to the dollar CNH=, near Tuesday's high of 6.8662.

Other currencies have mostly muted reaction to the trade deal.

Against the yen the dollar traded at 109.90 yen JPY=, below its near eight-month peak of 110.22 set on Tuesday.

Investors look at computer screens showing stock information at a brokerage house in Shanghai, China January 16, 2020. REUTERS/Aly Song

The euro stood at $1.1152 EUR=, extending its recovery from a low of $1.10855 hit last Friday.

Oil prices edged back after touching a six-week trough the previous day on data showing big increases in U.S. refined products.

U.S. West Texas Intermediate (WTI) crude CLc1 gained 0.48% to $58.09 per barrel. It had fallen to as low as $57.36 on Wednesday.

Reporting by Hideyuki Sano; Editing by Lincoln Feast.

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