World shares rallied on Tuesday to hold near one-month highs, with German carmakers outperforming and Wall Street looking to extend gains after the United States stepped back from imposing tariffs on Mexico.
With Frankfurt re-opening after a one-day holiday, German investors returned to shares after a U.S.-Mexico deal on Friday apparently averted tariffs threatened by President Donald Trump.
Investors are also heartened by expectations the U.S. Federal Reserve will soon start cutting rates, with markets pricing in a cut by July. Those hopes were re-ignited by Friday’s disappointing jobs report, and could be boosted further if retail and inflation data this week also disappoint.
“We are in a situation where bad news is good news,” said Silvia Dall’Angelo, senior economist at Hermes Investment Management, noting the recent dovish signal from Fed Chair Jerome Powell and recent lackluster U.S. data.
“Equity markets are relying on loose monetary policy, but they are also taking Trump at face value so I expect more volatility ahead,” Dall’Angelo said.
Frankfurt’s DAX index rose 1.2%. BMW, Daimler and VW – considered sensitive to trade tariffs – all gained 1.8% to 2%, mirroring a 1.9% gain for the auto sector.
The pan-European STOXX 600 climbed 0.8%, on course for a sixth day of gains in the last seven. MSCI’s index of global equities rose 0.3% for a seventh day of gains
The Mexico news and interest rate bets fueled a strong close on Wall Street on Monday, with the Dow Jones enjoying its longest winning streak in 13 months. It was preparing to build on those gains, according to equity futures, which were up 0.4%. S&P500 and Nasdaq futures rose 0.5% to 0.7%.
With fears easing that the United States would launch a trade war with Mexico, investors appeared to shrug off Trump’s threat to impose more tariffs on China if no progress was made in talks with President Xi Jingping. They are expected to meet at a Group of 20 summit on June 28-29.
“It looks like we will have to wait to see at the end of the month, to see what the next move will be,” said David Madden, an analyst at CMC Markets. “In that time, if nothing is said, stocks could press on higher.”
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Frontpage October 24, 2019