(Reuters) - Looks like cash sitting in defensive assets is being deployed into equities as we reach the end of 2019.
There are clouds on the horizon for sure – sluggish world growth, Brexit, problems in several emerging market - but for now markets are focusing on comments by U.S. Secretary of State Mnuchin that phase one of a trade deal with China was complete and that the two sides would sign it after the New Year.
All three major U.S. stock indexes notched up record closing rallies on Thursday; the S&P 500 reached a sixth consecutive record high, its longest streak since January 2018. Icing on the cake was Congress approval for a new North American trade deal that left in place $1.2 trillion in trade flows.
So world stocks have risen nine of the past 10 sessions and the MSCI world index is set for its best month since March, rising more than 7% so far in December. Markets barely batted an eyelid when the U.S. House of Representatives voted to impeach President Donald Trump. European shares are up around 0.3%, up 1% this week.
German and U.S. government bond markets are on course for their fourth straight month of higher yields – Treasury yields are up 10 basis points this week, their biggest rise since early November. That’s despite persistent worrying signs on the growth front.
The U.S. Philly Fed and housing data were underwhelming yesterday and Japan has just downgraded its view on the economy for the fourth time this year. Japanese inflation did tick up last month, data showed today, but the 2% target remains a distant dream.
German consumer morale has worsened, a survey showed on Friday, raising fears for consumer spending in Europe's largest economy. As we await UK and U.S. final reports on third-quarter gross domestic product, a Reuters poll showed analysts expect world growth to remain subdued in 2020, with central banks’ toolkit considered to be exhausted.
In Britain, parliament is set to debate PM Boris Johnson’s Brexit bill later in the day. The majority he won in last week’s election should allow him to get that across the line easily, but fears are growing now that the country faces another cliff-edge no-deal Brexit deadline at the end of 2020.
That’s taken sterling down to around $1.30, after it tested a two-week low of $1.2990 on Thursday. So after three weeks of gains, sterling is set for its biggest weekly decline in more than two years, down 2.4% so far.
Also in the UK, FCA boss Andrew Bailey was chosen as the new governor of the Bank of England. The market hasn't reacted -- Bailey spent 30 years at the BoE, but he was never a member of the Monetary Policy Committee, so his policy stance is unknown.
In European stocks, there are some corporate updates, such as Shell and Credit Suisse's fourth-quarter updates. Traders call Shell shares 2% lower, pointing to lower capex and impairment charges in the quarter. Credit Suisse shares are higher after it said it would book a pre-tax gain of at least 450 million Swiss francs in the quarter.
Nike, which was close to record highs, fell 2% overnight after it reported margins were hurt by higher product costs from incremental tariffs. Nike's results could hurt Adidas and JD Sports.
Emerging-market stocks were down 0.1% after recent gains. China kept its lending benchmark rate unchanged on Friday.
Turkey’s lira is 0.2% stronger against the dollar, a day after sliding to its weakest level in daily trade since May. South Africa’s rand is 0.3% weaker, easing back from near a four-and-a-half-month high. Most Asian currencies were stronger.
The Mexican central bank on Thursday cut its benchmark interest rate to 7.25%, as expected, citing softening headline inflation and slack in the economy. Argentina’s central bank on Thursday cut its benchmark interest rate to 58% from 63%.
-- A look at the day ahead from Deputy EMEA Markets Editor Sujata Rao. The views expressed are her own --
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