Stocks climb with bond yields on trade optimism

Marco Green
June 12, 2019

The Mexican peso rose as much as 2.5% to 19.1381 per dollar after U.S. President Donald Trump said late Friday that plans for a 5% tariff on Mexican goods had been "indefinitely suspended".

Earlier, S&P500 mini futures rose as much as 0.8pc and was last up 0.3pc.

Global investors had feared that opening up another trade conflict, while still battling with China, could tip the United States and other economies into recession. Referring to weak May jobs data released on Friday, he added: "You can't deny the data".

Tokyo's Nikkei gained 1.1% while MSCI's index of Asia-Pacific shares outside Japan rose 0.7%, led by strong gains in Hong Kong and Indonesia.

The U.S. -Mexico trade and migration deal also boosted emerging market stocks and sent U.S. government bond yields higher as investors favored riskier assets. Against the euro it rose 0.3% to $1.1304, with the single currency also under pressure after sources told Reuters that European Central Bank policymakers were open to cutting rates if economic growth weakened.

Pictet Wealth Management said in a Monday note it has moved to a "tactically underweight" stance on global equities, citing "elevated valuations, mixed economic data and rising trade tensions".

China's exports unexpectedly returned to growth in May despite higher USA tariffs, data showed on Monday, but many suspected the rise was due to firms front-loading shipments to avoid higher USA tariffs. "The data from last week is going to percolate to the surface".

In the United States, expectations the Federal Reserve will cut rates kept the dollar on the defensive after a weak jobs report from the US Labor Department.

Nonfarm payrolls increased by 75,000 jobs last month, much smaller than the 185,000 additions estimated by economists in a Reuters poll. Tensions between the USA and Mexico had also added to concerns about global economic growth that have seen traders amp up their bets on potential interest-rate cuts by the Federal Reserve and provided fuel for the flight to safety that last week drove 10-year Treasury yields down to a level unseen since 2017.

Fed funds rate futures are still pricing in more than two 25-basis point rate hikes by the end of this year even after their retreat early on Monday after the US-Mexico migration deal.

"I would expect optimism to rule markets until the next Fed's meeting", said Naoya Oshikubo, senior economist at Sumitomo Mitsui Trust Asset Management.

Spot gold dropped 0.9% to $1,328.56 an ounce, after closing at its highest level since February on Friday.

The U.S. dollar was down 2% against the Mexican peso, which was at its highest level since May 31. The peso was last up 1.65 per cent at 19.30 pesos per dollar.

In currency trading, the dollar index rose 0.23%, with the euro down 0.15% at $1.1314. The offshore rate was slightly lower at 6.9488 yuan per dollar but held above Friday's low.

Trump said on Monday that he was ready to impose another round of tariffs on Chinese imports if he does not reach a trade deal with China's president at a Group of 20 summit later this month.

Oil prices steadied as major producers Saudi Arabia and Russian Federation had yet to agree on extending an output-cutting deal and U.S.

Brent futures rose 0.25% to $63.45 per barrel while USA crude futures gained 0.57% to $54.30.

Other reports by Click Lancashire

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