European stocks buoyed by US trade, rate hopes
LONDON: European stock markets rose on Monday (Jun 10), building on strong pre-weekend gains, after US President Donald Trump dropped threatened tariffs against Mexico and weak US jobs data fanned expectations the Federal Reserve will cut interest rates next month.
In foreign exchange, the dollar recovered against major rivals after dipping on Friday – and Mexico’s peso rallied more than two percent against the US unit.
Separately, the pound was knocked by official data showing UK gross domestic product contracted 0.4 per cent in April on a slump in manufacturing amid Brexit uncertainty.
“President Donald Trump’s announcement that he is suspending the five-percent tariff on Mexico which was scheduled for today is prompting a recovery in equity markets,” said VTB Capital economist Neil MacKinnon.
“From an economic point of view, an increase in tariffs is like a tax increase … Higher tariffs negatively affect world trade and global GDP growth,” he explained in a client note.
Observers pointed out, however, that the US-China trade stand-off remains unresolved ahead of a possible meeting between Trump and Chinese counterpart Xi Jinping at a summit of the Group of 20 top economies in Japan later this month.
“The focus will now shift back to the G20 and China,” said strategists at TD Securities.
“Despite the positive result with Mexico, the US-China trade dispute is a different creature, and tensions remain high.”
At the weekend, finance ministers of the G20 issued a communique saying “growth remains low and risks remain tilted to the downside”.
It added that “trade and geopolitical tensions have intensified” but they “stood ready to take further action” if needed.
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Markets reacted also to Friday data showing the United States added only 75,000 net new positions in May, fewer than half the 180,000 economists had been expecting.
It came after Fed policymakers last week sent signals about being open to cutting US interest rates amid signs of weakness in the economy.
Elsewhere, oil prices steadied after Friday’s sharp gains, which came after Saudi Arabia and Russia said they would continue with their output caps.
However, analysts warned the China-US trade war and concerns about weakening demand growth would keep prices under pressure.
On the corporate front, shares in embattled Thomas Cook surged after the British travel company said it had received a takeover approach for its tour-operator business from Chinese tourism group Fosun.
After surging 20 per cent in early London business, they settled at a gain of around 15 per cent on the day in closing trade.
Key figures around 1540 GMT:
London – FTSE 100: UP 0.6 per cent at 7,375.54 points (close)
Frankfurt – Closed for German holiday
Paris – CAC 40: UP 0.3 per cent at 5,382.50 (close)
EURO STOXX 50: UP 0.2 per cent at 3,386.45
Tokyo – Nikkei 225: UP 1.2 per cent at 21,134.42 (close)
Hong Kong – Hang Seng: UP 2.3 per cent at 27,578.64 (close)
Shanghai – Composite: UP 0.9 per cent at 2,852.13 (close)
Euro/dollar: DOWN at US$1.1311 from US$1.1335 at 2030 GMT Friday
Pound/dollar: DOWN at US$1.2685 from US$1.2736
Dollar/yen: UP at 108.53 yen from 108.15
Oil – Brent Crude: UP 4 cents at US$63.33 per barrel
Oil – West Texas Intermediate: UP 21 cents at US$54.20 per barrel