Trade-Talk Progress Lifts Global Stocks

By David Hodari 

Global stocks gained Wednesday on a fresh wave of trade optimism and climbing oil prices, shrugging off a leadership challenge against U.K. Prime Minister Theresa May.

U.S. futures put the S&P 500 and the Dow Jones Industrial Average on course to rise 1% at the open, with trade-sensitive stocks like Caterpillar and Cisco up 2% and 1.1% in premarket trade, respectively. Meanwhile rising oil prices helped push Exxon Mobil stock 2.1% higher ahead of the market open.

Brent crude oil prices rose 1.6% to $61.18 a barrel and West Texas Intermediate Futures were up 1.5% at $52.58 a barrel, after weekly American Petroleum Institute figures released Tuesday revealed a larger-than-expected fall in U.S. inventories.

Stocks in Europe built on Tuesday's gains, with the pan-continental Stoxx Europe 600 index up 1.3% in afternoon trade, while the British pound edged up 0.7% but remained near its lowest level in 20 months.

Lawmakers in the U.K.'s ruling Conservative party initiated a no-confidence vote against Mrs. May. On Monday, she postponed a parliamentary vote on her Brexit bill, which prompted a new volley of criticism over her handling of the country's exit from the European Union. The yield on U.K. 10-year government bonds was at 1.23%, up from 1.18% late Tuesday. Yields rise as prices fall.

Rises in European stocks echoed gains in Asia, where the Nikkei climbed 2.2% and Hong Kong's Hang Seng Index rose 1.6% as signs of a further softening in trade tensions revived risk appetite. Benchmarks in Taiwan, South Korea and Singapore all increased more than 1%.

Details continued to emerge from the first trade talks between Washington and Beijing, with China agreeing to boost purchases of soybeans and other crops, and to reduce auto tariffs.

The warming in U.S.-China trade relations has prompted cautious optimism among some investors, said Viktor Hjort, global head of credit strategy at BNP Paribas.

"A resolution on global trade is one of the most important issues for markets going into 2019," Mr. Hjort said. "The positive angle is that U.S. and Chinese negotiators appear to be making an effort, but I think at this point, any absence of bad news is good news."

President Trump said in an interview with Reuters he would intervene in the Justice Department's case against Huawei Chief Financial Officer Meng Wanzhou if it would help smooth a trade deal with China. Ms. Wanzhou was granted bail by a Canadian judge Tuesday, after her arrest last week sent shock-waves through global stocks.

Uncertainty around trade will remain elevated, though, with technological and intellectual property disputes between Washington and Beijing unlikely to die down despite more conciliatory rhetoric, said Ann-Katrin Petersen, investment strategist at Allianz Global Investors.

The Chinese yuan was last up 0.1% against the U.S. dollar. The WSJ Dollar Index, which measures the buck against a basket of other currencies, was up 0.2%, its five-day gains eroded to 0.4%.

U.S. investors were also keeping an eye out for inflation data, due out later in the day. It comes a day after producer price data, another gauge of inflation, signaled a third straight monthly rise. The numbers will be scrutinized in the context of next week's Federal Reserve meeting, at which investors broadly expect Chairman Jerome Powell to raise interest rates.

CME Group data gave a 78.,4% probability that Mr. Powell will announce an interest-rate increase.

Market participants will closely monitor the no-confidence vote on U.K. Prime Minister Theresa May's leadership later Wednesday, although British assets' initial reaction to the announcement was muted. The U.K.'s FTSE 100 index was last up 1.3%, broadly in line with gains elsewhere in Europe, while the FTSE 250 was up 1.2%.

More volatility may be ahead for U.K. assets, though, with some analysts seeing the confidence vote as a binary event for sterling.

Wednesday's vote is the latest in a series of developments that have prompted investors from outside the U.K. to limit their exposure to Brexit uncertainty in recent months, said Emmanuel Cau, head of European equity strategy at Barclays.

"Global investors have left the U.K. equities and FX markets and not many people have the ability to trade on what's going to happen," said Mr. Cau. "In this particular situation, nobody's been able to make forecasts so they've stopped trying."

A victory for Mrs. May could prompt a rally as large as 2% for the pound, while defeat would shave off another 3%, Nomura said in a note.

Elsewhere in Europe, investors monitored the reaction to French President Emmanuel Macron's decision to cut taxes in the wake of protests. The move may test the EU's budgetary rules and embolden other members, such as Italy, to do the same.

In commodities, gold was up 0.2% at $1,249.50 a troy ounce.

Write to David Hodari at [e-mail]

(END) Dow Jones Newswires

December 12, 2018 08:29 ET (13:29 GMT)

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