Trade hopes sustain risk-on mood; ECB sinks bonds

Bloomberg

Trade hopes and the end of easy money were the twin themes in trading on Wednesday, with stocks extending gains and bonds falling as this week’s risk-on mood endured.
US equity futures climbed following advances across Asia on signs that major economies will step back from the brink of a trade war. More than half of companies in the Stoxx Europe 600 Index also rose, but the gauge was little changed as a strengthening euro provided a headwind and as Italian shares fell. Both were reacting to signs that the ECB is ready to discuss an end to quantitative easing, which sank bonds in the region and spurred fears for Italy’s embattled lenders. The British pound strengthened as the UK’s main opposition party pushed for a soft Brexit.
The dollar stayed lower after the US trade deficit narrowed to the lowest level since September thanks to record exports. Most metals rallied and 10-year Treasury yields climbed above 2.95 percent after China was said to offer to buy more American products and on reports the Treasury Department favours less sweeping investment limits on the Asian nation.
Investors have been here before: The on-again, off-again threat of protectionism is becoming a common refrain in global markets. They’ll now look ahead to the G-7 meeting this week for further developments in the story, as well as to this month’s meetings of both the Federal Reserve and the European Central Bank for more clues on monetary policy. ECB chief economist Peter Praet on Wednesday confirmed next week’s gathering will be pivotal for a decision on when to end its bond-buying programme.
Elsewhere, Brazil’s real deepened losses after closing at the weakest since 2016 on Tuesday following a failed attempt by the central bank to halt the currency’s slide.
South Africa’s rand also dropped after a gauge of business confidence fell to the lowest since October, adding to worries about the economic outlook. And Indian sovereign bonds slipped and the rupee advanced following a rate increase.
On Thursday, Japanese Prime Minister Shinzo Abe meets with US President Trump at the White House to discuss the planned US summit with North Korea’s Kim Jong-un. Also on Thursday, euro-zone GDP. G-7 Leaders’ Summit starts in Quebec Friday through to June 9.
The Stoxx Europe 600 Index dipped 0.1 percent in New York. Futures on the S&P 500 Index gained 0.2 percent to the highest in almost 12 weeks. The UK’s FTSE 100 Index climbed 0.3 percent. Germany’s DAX Index rose 0.3 percent to the highest in more than a week. The MSCI Emerging Market Index jumped 0.5 percent to the highest in three weeks. The MSCI Asia
Pacific Index jumped 0.4 percent to the highest in more than three weeks.
The Bloomberg Dollar Spot Index fell 0.3 percent to the lowest in almost two weeks on the largest fall in a week. The euro gained 0.4 percent to $1.1766, the strongest in more than two weeks on the biggest advance in a week. The British pound gained 0.2 percent to $1.342, the strongest in more than two weeks. The Japanese yen fell 0.3 percent to 110.07 per dollar, the weakest in two weeks. The Turkish lira increased 0.2 percent to 4.5901 per dollar.
The yield on 10-year Treasuries gained two basis points to 2.95 percent, the highest in almost two weeks. Germany’s 10-year yield gained seven basis points to 0.44 percent, the highest in almost two weeks on the largest advance in a week. Britain’s 10-year yield rose six basis points to 1.342 percent.