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Stocks, euro rise on recovery hopes; U.S.-China rift lifts gold


By Herbert Lash and John McCrank

NEW YORK (Reuters) - A gauge of global equity markets climbed on Thursday on optimism for a speedy economic recovery and a massive stimulus plan in Europe helped lift regional stocks and the euro, while gold rebounded on a safety bid on deteriorating U.S.-China relations.

MSCI's gauge of stocks across the globe rose 0.46% but Wall Street ended lower after a late-session reversal on headlines that President Donald Trump would hold a news conference on Friday about China.

Markets are slowly realizing the escalating tensions between the U.S. and China is not going away and represent headwinds for the global economy, said Ed Moya, senior market analyst at OANDA in New York.

"There's going to be some push back. No one was anticipating that in the immediate future," Moya said. "It could derail some of the reopening momentum we've had."

Oil futures rose, reversing earlier losses, on signs U.S. gasoline demand is increasing despite a big surprise build in crude inventories and worries that China's new security law for Hong Kong could result in demand-dampening trade sanctions.

Gold pared earlier gains of 1% as rising stock markets dulled its safe-haven appeal, but the escalating U.S.-Chinese tensions kept bullion propped up.

China's parliament approved national security legislation for Hong Kong that democracy activists say could erode the territory's freedoms and jeopardize its role as a global financial hub.

Investors have largely turned a blind eye to renewed U.S.-China tensions and instead are focused on the reopening of business activity, Candice Bangsund, a global asset allocation portfolio manager at Fiera Capital in Montreal, said earlier in the session.

"Stocks have maintained that positive momentum largely reflecting optimism that growth will recover as COVID lockdowns are eased and economies progressively reopen," Bangsund said. "Enhanced government stimulus announcements this week out of Europe and Japan have emboldened that risk-on trade."

The number of Americans seeking jobless benefits fell for an eighth straight week last week, but claims remained astonishingly high.

In Europe, the pan-regional STOXX 600 index rose 1.64% to an 11-week high on the European Union's plan to prop up the bloc's coronavirus-hit economies with a 750-billion-euro ($828 billion) recovery fund.

The euro fell 0.04% to $1.1072, a two-month high. The dollar index fell 0.423%.

Stocks on Wall Street closed lower, as early gains in healthcare and technology stocks were overtaken by falling bank and consumer discretionary shares.

The Dow Jones Industrial Average fell 147.63 points, or 0.58%, to 25,400.64. The S&P 500 lost 6.4 points, or 0.21%, to 3,029.73 and the Nasdaq Composite dropped 43.37 points, or 0.46%, to 9,368.99.

Overnight in Asia, markets were subdued after U.S. Secretary of State Mike Pompeo warned Hong Kong no longer warranted special treatment under U.S. law.

MSCI's broadest index of Asia-Pacific shares outside Japan ended flat. Shares in Hong Kong ended down 0.7% as Chinese shares managed to close in positive territory [.SS], while Japan's Nikkei jumped 2.3%. [.N][.T]

Euro zone bond yields were stable, with Italian borrowing costs - a key European confidence indicator - edging toward eight-week lows. Safe-haven German bonds sold off slightly.

U.S. government debt yields rose as stocks gained, reducing demand for safe-haven bonds, before the Treasury is due to sell a record $38 billion of seven-year notes.

Benchmark 10-year notes rose 1.5 basis points to yield 0.6966%.

The U.S. Energy Information Administration said crude inventories rose 7.9 million barrels in the latest week, exceeding expectations, due to a big increase in imports. But gasoline stockpiles fell unexpectedly as refiners boosted output. [EIA/S]

U.S. crude futures rose 90 cents to settle at $33.71 a barrel while Brent rose 55 cents to settle at $35.29.

Saudi Arabia and some other OPEC oil producers are considering extending record-high output cuts until the end of 2020 but have yet to win support from Russia, according to OPEC+ and Russian industry sources.

U.S. gold futures settled up 0.1% at $1,728.30 an ounce.

(Reporting by Herbert Lash; Editing by Bernadette Baum, Leslie Adler, Tom Brown and Diane Craft)

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