Equities rally, pound jumps on upbeat geopolitical news

Stock indexes worldwide rebounded on Wednesday, and the euro and pound sterling bounced back as easing geopolitical concerns and upbeat economic data from China brought buyers back to the equities market.

A parliamentary vote in Britain raised hopes that the nation’s no-deal exit from the European Union could be postponed, Hong Kong withdrew the contentious extradition bill at the heart of recent protests and political risks in Italy appeared to be easing, all of which helped revive investor risk appetite.

China’s services sector expanded in August at its fastest pace in three months as a jump in new orders prompted the biggest hiring increase in over a year, according to the Caixin/Markit services purchasing managers index (PMI).

“Markets like the Brexit and Hong Kong news, but we think this is just a short term headline and the problems are likely to re-emerge,” said David Carter, chief investment officer at Lenox Wealth Advisors in New York. “Let’s not pop the champagne because we had one good day of geopolitical headlines.” The US trade deficit shrank in July, according to the Commerce Department, but bilateral gaps in goods trade with key trading partners widened. A bump in US exports helped shrink America’s yawning trade deficit in July while imports from China continued to fall amid the two nations’ trade war, government data showed Wednesday.

The US trade gap in July narrowed by 2.7 percent to $54 billion, the largest drop in five months, as the United States exported more automobiles, medications, aircraft and oil drilling equipment, the Commerce Department said.

The closely watched deficit with China grew by 9.4% as the bruising Sino-US trade war rages on and deficit with the European Union rose to a record high.

The Dow Jones Industrial Average rose 167.9 points, or 0.64%, to 26,285.92, the S&P 500 gained 18.91 points, or 0.65%, to 2,925.18 and the Nasdaq Composite added 64.05 points, or 0.81%, to 7,938.21.

The political developments in Europe and Hong Kong helped fuel a rally in European stocks, sending them to one-month highs.

The pan-European STOXX 600 index rose 0.82% and MSCI’s gauge of stocks across the globe gained 0.92%.

Emerging markets equities were led higher by Hong Kong stocks on reports that the government might scrap its controversial extradition bill.

Emerging market stocks rose 1.81%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.83% higher, while Japan’s Nikkei rose 0.12%.

US Treasuries were essentially flat but the yield curve steepened slightly as longer-dated yields edged higher on calming geopolitical concerns.

Benchmark 10-year notes last fell 4/32 in price to yield 1.4775%, from 1.466% late on Tuesday.

The 30-year bond last fell 20/32 in price to yield 1.9759%, from 1.95% late on Tuesday.

The Latin American currencies rose on Wednesday, helped by a softer US dollar and rising oil prices, while newly imposed capital controls in Argentina helped its markets steady even as anti-government protests gathered steam in Buenos Aires.

MSCI’s index of Latin American currencies came off their one-year lows to move 0,8% higher as weak manufacturing data in the US put the greenback on the back foot. Brazil’s real and Mexico’s peso led gains, each up nearly 1%, getting an additional boost from higher oil prices. Chile’s peso was only marginally higher, underperforming its regional peers after the central bank cut its key interest rate by 50bps on Tuesday as inflation levels continue to drag for the world’s top copper exporter.

Latin America’s top currencies are, however, poised to remain weak in coming months as central banks in Brazil and Mexico keep easing to revive growth, with worries over Argentina’s financial condition adding to a softer trend, a Reuters poll showed.

Fresh doubts about the scale of the European Central Bank’s stimulus package caused the Euro to rebound, while the dollar continued its retreat from a more than two-year high against a basket of major world currencies. The pound sterling recovered as efforts to stop a no-deal Brexit advanced.

The dollar index fell 0.44%, with the euro up 0.44% to $1.102.

The Japanese yen weakened 0.21% versus the greenback at 106.18 per dollar, while sterling was last trading at $1.2188, up 0.86% on the day.

Oil prices rose with the tide, boosted by easing geopolitical tensions and the positive news about China’s services sector.

US crude rose 3.39% to $55.77 per barrel and Brent was last at $60.13, up 3.21% on the day.

Gold dipped on receding global political risks, but remaining economic concerns in the shadow of the US-China trade war kept the precious metal near a six-year peak. Spot gold fell 0.03% to $1,546.13 an ounce. Copper rose 2.42% to $5,745.50 a tonne.

Three-month aluminium on the London Metal Exchange rose 1.20% to $1,774.00 a tonne.

Agencies