By Rodrigo Campos
NEWYORK (Reuters) – Global stocks and the euro rallied on Friday on signs of progress in U.S.-China trade talks and hopes that Britain was moving closer to a smooth exit from the European Union.
The MSCI world equity index <.MIWD00000PUS> was on track for its first weekly rise in four. Frankfurt’s main stock index <.GDAXI>, seen as sensitive to trade wars because of its export-oriented components, ended up 2.9% for its biggest daily gain since January 4.
The improved appetite for riskier assets carried from Thursday and improved after U.S. President Donald Trump said “good things” were happening during high-level China-U.S. trade talks and spoke of “warmer feelings.”
U.S. officials signalled good news was coming after a second day of trade talks with China ended, boosting investor hopes that the world’s two largest economies would agree to cool the fires of their 15-month tariff war.
However, investors said they were hoping for, at best, a deal limited in scope, and noted that rhetoric had in the past failed to translate into meaningful moves.
“We have been here before, where we have seen positive talk. It’s possible they will be able to do a smaller deal around tariffs, where there is some room for movement,” said Mike Bell, global market strategist at J.P. Morgan Asset Management.
Sterling jumped nearly 2% versus the dollar for a second day, putting it on track for its largest weekly gain in more than two years after the EU Brexit negotiator reported a “constructive” meeting with his British counterpart.
Sterling <GBP=> was last trading at $1.2657, up 1.74%.
Sterling loses a cent in two minutes before recovering – https://fingfx.thomsonreuters.com/gfx/mkt/12/7243/7174/gbp.png
Stocks on Wall Street followed Asia and Europe, with the S&P 500 on track for its largest daily gain in at least two months.
“Over the last couple of months, we have seen (companies)taking a hit from the uncertainty around trade and markets will be looking for any clues to remove that,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
“It is still going to be a one step forward, two steps backward tone with the (trade) talks, but there are hopes of a de-escalation.”
The Dow Jones Industrial Average <.DJI> rose 390.17 points, or 1.47%, to 26,978.38, the S&P 500 <.SPX> gained 50.51 points, or 1.72%, to 2,988.64 and the Nasdaq Composite <.IXIC> added 157.94 points, or 1.99%, to 8,108.73.
The pan-European STOXX 600 index <.STOXX> rose 2.31% and MSCI’s gauge of stocks across the globe <.MIWD00000PUS> gained 1.77%.
Emerging market stocks rose 1.82%. MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> closed 1.81% higher, while Japan’s Nikkei <.N225> rose 1.15%.
The Federal Reserve said it would begin buying about $60 billion per month in Treasury bills to ensure “ample reserves” in the banking system, a programme that will continue at least until the second quarter of 2020.
The dollar fell towards its session lows after the Fed announcement.
The dollar index <.DXY> fell 0.38%, with the euro <EUR=> up 0.31% to $1.1038.
The Japanese yen weakened 0.46% versus the greenback at 108.50 per dollar as its global safe-haven lustre faded.
In commodities, oil prices rose after Iranian media said a state-owned oil tanker had been attacked in the Red Sea near Saudi Arabia, raising the prospect of supply disruptions, but bearish oil demand forecasts are seen keeping a lid on gains.
U.S. crude <CLc1> rose 2.35% to $54.81 per barrel and Brent <LCOc1> was last at $60.58, up 2.5% on the day.
The Fed announcement triggered a steepening of the U.S. yield curve, with the spread between 10-year <US10YT=RR> and three-month <US3MT=RR> yields on track to end the session in positive territory for the first time since May.
Benchmark 10-year notes <US10YT=RR> last fell 29/32 in price to yield 1.7552%, from 1.656% late on Thursday.
The 2-year note <US2YT=RR> last fell 6/32 in price to yield 1.6199%, from 1.53% late on Thursday.
(Reporting by Rodrigo Campos; additional reporting by Tom Wilson and Shadia Nasralla in London, Shreyashi Sanyal in Bengaluru and Kate Duguid, Jonnelle Marte and Gertrude Chavez-Dreyfuss in New York; Editing by Alexander Smith and Nick Zieminski)