Stocks News

Daily Briefing: Eyes turn to central banks as stocks eke out new records

LONDON (Reuters) - World stock markets remained near the record highs they set on Wednesday as they digested the details of the U.S.-China trade truce, sized up the first big central bank policy meetings of 2020 and evaluated the fourth-quarter corporate earnings streaming in.

FILE PHOTO: New European Central Bank President Christine Lagarde addresses a news conference on the outcome of the meeting of the Governing Council, in Frankfurt, Germany, December 12, 2019. REUTERS/Ralph Orlowski

Wall Street’s equity volatility gauge dipped back below 12% for the first time this year yesterday and Deutsche Bank’s currency equivalent, the CVIX, plunged below 5% for the first time ever.

While there’s a certain amount of scepticism about the scope and enforceability of the Phase 1 trade deal signed in Washington yesterday, markets felt it calmed relations between China and the United States for several months at least, reduced the chances of new tariffs and probably left the thornier issues until a second phase of talks after U.S. elections in November.

Chinese Vice Premier Liu He is handed a pen by U.S. President Donald Trump after signing "phase one" of the U.S.-China trade agreement during a ceremony in the East Room of the White House, January 15, 2020. REUTERS/Kevin Lamarque

So, while the deal itself is now well priced, the hoped-for relief in economic activity and business sentiment will be watched closely from here.

Super-easy monetary policies from the world’s central banks is then the other key factor. European Central Bank President Christine Lagarde speaks on Thursday before next week’s ECB meeting, the first of the year. ECB policy meeting minutes are also released.

Federal Reserve policy is probably on hold; this week’s U.S. inflation readings undershot forecasts yet again, and producer-price inflation for 2019 came in at its lowest since 2015. U.S Treasury yields and the dollar fell as a result this week, with one eye on the impeachment trial of U.S. President Donald Trump.

Speculation about a Bank of England interest rate cut as soon as this month was also encouraged by data on Wednesday showing the lowest UK inflation readings in three years, reinforcing signals from at least four BoE policymakers over the past week that another rate cut was being discussed.

The Bank’s chief economist, Andrew Haldane, considered one of the hawks on the council, is due to speak in London later today and the next BoE meeting is on Jan. 30 – the day before Brexit finally gets triggered.

Sterling has held up reasonably well to the rate-cut speculation, with markets waiting for business surveys that will show how economic sentiment fared after last month’s election.

In emerging markets, Turkey’s central bank is expected to cut its interest rates as much a percentage point later on Thursday, with traders eyeing a policy decision from South Africa’s central bank, too. The lira and rand were steady to a touch weaker first thing Thursday.

The overall investment mood remains upbeat. Wall Street’s S&P 500 recorded another record closing high on Wednesday. So did MSCI’s all-country world index, which is higher early on Thursday. U.S. bank earnings this week have been steady.

A miss by Goldman Sachs weighed on financial stocks on Wednesday, but JPMorgan and Citi beat forecasts. Morgan Stanley and Bank of New York Mellon are among the big names out later.

In Asia, most major markets were steady to higher again today. Shanghai lost about 0.5%, but Seoul’s Kospi and Australia’s benchmark were both up about 0.7%.

U.S. futures are up and European stocks opened higher. Elsewhere, Russia’s rouble weakened after Russian Prime Minister Dmitry Medvedev and his cabinet resigned on Wednesday and President Vladimir Putin proposed sweeping constitutional changes.

In Lebanon, protests turned violent for a second night, with little sign of a political resolution. Investors are looking for more news on plans to relieve the country's debt burden. The Lebanese central bank's governor was forced to backtrack on a proposed bond swap that ratings agencies warned the government could trigger a default.

In European corporate news, there’s some concern Trump will now make Europe his next trade war target. A report in the Washington Post said the White House had threatened Europe with 25% auto tariffs over the Iran nuclear programme, a reminder of how tensions could flare up again.

PSA said global sales fell 10% last year to 3.49 million units from a record in 2018 as it kept suffering from declining volumes in China, Middle East and Africa. Geberit shares fell 1.7% after the plumbing supplies company posted a 1.9% rise in fourth-quarter organic sales.

HelloFresh raised its guidance, sending its shares up 8.2% in early trade. Nivea-maker Beiersdorf said it was "cautiously optimistic" for 2020 despite another quarter of slowing sales growth.

Associated British Foods kept its full-year earnings outlook, and education company Pearson met guidance with flat revenue in 2019 and operating profit. Varta said it was increasing production capacity for lithium-ion batteries, lifting its shares 4.9%.

In Asia Taiwan Semiconductor Manufacturing posted a better-than-expected quarterly profit on strong demand for 5G chips.

— A look at the day ahead from EMEA Markets Editor Mike Dolan. The views expressed are his own —