Global shares rally on China trade comment, Italy accord

US and European shares advanced on Thursday as China struck a hopeful tone on trade relations with the United States and as Italy appeared close to forming a new government and resolving its political crisis.

Wall Street stocks jumped 1% after China’s commerce ministry said Beijing and Washington were discussing the next round of face-to-face talks scheduled for September. The comments spurred hopes for progress in the talks and boosted the Chinese yuan, which snapped a 10-day losing streak.

“We are seeing a bit of a softer tone that’s giving investors hope,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“Perhaps the September talks might bring some fruitful conclusions and some progress that could result in lowering tariffs or getting serious about concluding a trade deal,” he added.

European shares also rose after Italy’s president asked former prime minister Giuseppe Conte to return to head up a new coalition of the anti-establishment 5-Star Movement and the opposition centre-left Democratic Party.

The coalition is a step toward resolving a three-week political crisis triggered after League leader Matteo Salvini pulled his hard-right party out of its governing alliance with 5-Star. Italian stocks rose 1.77%, and the country’s government bonds also rallied, with yields on 10-year bonds hitting a record low. US Treasury yields, however, moved off recent lows as stocks rose. Data showing second-quarter US gross domestic product growth in line with consensus estimates also bolstered bond yields.

Yields on German 10-year bonds also ticked higher.

Among currencies, Argentina’s peso rebounded to trade little changed against the US dollar after sinking as much as 3% earlier in the day on the country’s plans to extend the maturities on some $100 billion of its debt.

On Wall Street, the Dow Jones Industrial Average rose 287.02 points, or 1.1%, to 26,323.12, the S&P 500 gained 31.62 points, or 1.09%, to 2,919.56 and the Nasdaq Composite added 109.56 points, or 1.39%, to 7,966.44.

The pan-European STOXX 600 index rose 0.95% and MSCI’s gauge of stocks across the globe gained 0.82%.

Benchmark 10-year Treasury notes last fell 14/32 in price to yield 1.513%, from 1.468% late on Wednesday.

The dollar index, tracking it against six major currencies, rose 0.2%, while the euro was down 0.14% to $1.1061.

The Japanese yen weakened 0.33% versus the greenback at 106.48 per dollar. Sterling was last trading at $1.2188, down 0.17% on the day.

In offshore trading, the Chinese yuan was last 0.33% higher at 7.145 per dollar.

Gold edged lower, though it still hovered near a six-year peak. Spot gold last fell 0.05% to trade at $1,538.06 per ounce.

Silver rose 0.98% to $18.51 an ounce after hitting its highest level since April 2017 at $18.64 earlier in the session.

In oil markets, US crude extended its gains from Wednesday on data showing a sharp fall in US inventories, while Brent held above $60 a barrel.

US crude rose 1.09% to $56.39 per barrel and Brent was last at $60.64, up 0.25% on the day.

Meanwhile,  Italian and Greek bond yields hit record lows on Thursday after Italy’s president gave Giuseppe Conte the green light to head a new coalition government, fuelling demand for risk assets.

Italian President Sergio Matarella gave Conte a new mandate to form a government comprising the ruling 5-Star Movement and opposition Democratic Party (PD). This means the prospect of a snap election has receded, easing economic uncertainty.

Lower Italian political risk has given yield-hungry bond investors an excuse to snap up Italian and Greek debt in a market where most sovereign euro zone bonds have a negative yield.

Rabobank estimates that Italy accounts for around 62% of euro zone government bonds offering a yield above zero.

Italy’s 10-year bond yield tumbled almost 10 basis points to a record low of 0.93%, before pulling back slightly to 0.96%. Even longer-dated Italian bond yields fell sharply with the 50-year yield hitting a record low of 2.148%.

The closely-watched gap between Italian and German 10-year bond yields tightened to 161 bps, the narrowest since May 2018. It was almost 8 bps tighter from Wednesday’s closing levels and 30 bps tighter this week. Expectations for fresh European Central Bank stimulus next month have also buffered Italy’s bond market from political risks.

The ECB still has room to cut rates if needed, Christine Lagarde, the bank’s likely future president said.

“We expect the ECB’s quantitative easing is on the way, so people will trade the good news and look through the negative aspects of [the Italian coalition] being potentially short-term,” said Lyn Graham-Taylor, fixed income strategist at Rabobank. The coalition deal helped Italy auction a five-year bond at a yield of 0.32%, the lowest since a September 2016 auction.

Agencies