World share and commodity prices rose on Monday as hints of progress on the Sino-U.S. trade standoff provided a rare glimmer of optimism in what has been a punishing end of year for markets globally.
Europe’s STOXX 600 (.STOXX) followed Asia’s overnight lead to push 0.3 percent higher as traders made a lacklustre effort to gloss over the worst year for equities (.MIWD00000PUS) since the 2008 financial crisis.
Survey data out of China, however, proved mixed with manufacturing activity contracting for the first time in two years even as the service sector improved.
Sentiment had brightened slightly when U.S. President Donald Trump said he held a “very good call” with China’s President Xi Jinping on Saturday to discuss trade and claimed “big progress” was being made.
Chinese state media were more reserved, saying Xi hoped the negotiating teams could meet each other half way and reach an agreement that was mutually beneficial.
The Wall Street Journal reported the White House was pressing China for more details of on how it might boost U.S. exports and loosen regulations that stifle U.S. firms there.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) ended up 0.6 percent, but were still down 16 percent for the year.
The story was much the same across the globe, with the vast majority of the major stock indices in the red.
London’s FTSE (.FTSE) and Paris’ CAC 40 (.FCHI) climbed 0.2 and 0.7 percent respectively on the day but both are down more than 11 percent in 2018. Germany’s export-heavy DAX (.GDAXI) has seen more than 18 percent wiped off its value.
E-Mini futures for Wall Street’s S&P 500 (ESc1) firmed 0.8 percent ahead of U.S. trading. [.N] That index (.SPX) is off almost 10 percent for December, its worst month since February 2009. That left it down 15 percent for the quarter and 7 percent for the year.
“Simply looking at the markets would suggest that the global economy is headed into recession,” said Robert Michele, chief investment officer and head of fixed income at J.P. Morgan Asset Management.
“However, while we agree the global economy is in a growth slowdown, we don’t see an impending recession,” he added, in part because the Federal Reserve could provide a policy cushion.
“Already, commentary out of the Fed suggests that it is nearing the end of a three-year journey to normalise policy,” argued Michele.
Indeed, Fed fund futures <0#FF:> have largely priced out any hike for next year and now imply a quarter point cut by mid-2020.
The Treasury market clearly thinks the Fed is done on hikes, with yields on two-year paper <US2YT=RR> having fallen to just 2.52 percent from a peak of 2.977 percent in November.
The $15.5 trillion market is heading for its biggest monthly rally in 2-1/2 years, according to an index compiled by Bloomberg and Barclays.
The precipitous drop in yields has undermined the U.S. dollar in recent weeks. Against a basket of currencies (.DXY), it was on track to end December with a loss of 0.8 percent but was still up on the year as a whole.
It has also had a tough month against the yen with a loss of 2.8 percent this month, and was last trading at 110.14 <JPY=>. However, 2018 was a pretty stable year for the pair given it spent all of it in a narrow trading range of 104.55 to 114.54.
The euro is on track to end the month on a weaker note at $1.1425 <EUR=>, nursing losses of almost 5 percent over the year to date.
That was trivial compared with the hit oil prices have taken in the last couple of months, with Brent down almost 40 percent since its peak in October.
The crude benchmark <LCOc1> was last up 98 cents at $54.20 a barrel but down 20 percent for the year. U.S. crude futures <CLc1> nudged up 62 cents to $45.95.
Gold was ending the year on a high note after rallying almost 5 percent in the past month to stand at $1,278.57 an ounce <XAU=>.
Another of the year’s the worst performers was the index of major Chinese companies (.CSI300), which lost a quarter of its value. The only major Asian market in the black for the year was India, where the BSE (.BSESN) was ahead by almost 6 percent.