By Ritvik Carvalho
LONDON (Reuters) – World stocks climbed on Friday, driven by a combination of strong earnings and a rally in the technology sector after Apple became the world’s first trillion dollar company, although worries over a global trade dispute kept a lid on gains.
Italy’s bonds sold off for a second straight day and stocks in Italian banks also fell on signs of renewed government tensions in Rome.
After hitting a three-week high, the dollar retreated into negative territory, while the Chinese yuan jumped after China’s central bank said it would keep the currency “basically stable”. The bank also said it would take counter-cyclical measures to keep foreign exchange markets stable based on market conditions.
The MSCI All-Country World Index, which tracks shares in 47 countries, was up by 0.1 percent after the start of European trading, and set to break a four-week streak of gains.
While a tech-led rally on Wall Street overnight filtered through to Asian stock markets, gains were capped by the trade tensions. MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.05 percent, though it was down over half a percent on the week.
The trade row between the world’s top two economies intensified midweek after U.S. President Donald Trump raised pressure on China by proposing a higher 25 percent U.S. tariff on $200 billion worth of Chinese imports. Beijing vowed to retaliate.
Investors were also cautious before the July U.S. jobs report due later in the day. This will give a reading on the health of the world’s largest economy, now in its second-longest expansion on record. Economists polled by Reuters expect 190,000 jobs were created in July.
Futures indicated a higher open on Wall Street.
“The stock market trend continues to be characterized by a struggle between trade war distress, growth risks and strong corporate Q2 reports,” SEB strategists wrote in a note to clients.
According to Bespoke Investment Group, mentions of tariffs in S&P 500 company earnings reports for the second quarter have more than doubled from the first quarter of this year.
The euro, which hit its lowest since the end of June earlier in the day, reversed course to trade 0.1 percent higher as the dollar retreated.
Elsewhere in currencies, Britain’s pound reversed course from two-week lows to turn higher on the day. It had earlier fallen after Bank of England Governor Mark Carney said there was an “uncomfortably high” risk of Britain leaving the European Union without a deal. [GBP/]
The BoE raised interest rates from crisis-era lows this week but that failed to boost the pound as the British central bank also signaled it was in no rush to tighten policy further.
ITALIAN JITTERS RETURN
Italian two-year and five-year government bond yields rose about 22 to 25 basis points to 1.27 percent and 2.32 percent in early trade, hitting their highest levels since early June. Italian bank stocks fell 0.8 percent, set for their worst week since early June.
(For a graphic on ‘Italy’s bonds, bank shares sell off’ click https://tmsnrt.rs/2Oamr3c)
Economy Minister Giovanni Tria is under pressure from within the government to raise spending and challenge European Union budget rules.
The possibility that he might be forced to resign has investors worried that Italy could go on a spending binge, or even that fresh elections could follow. That in turn could strengthen the hand of the eurosceptic League party and its leader, Matteo Salvini.
“Clearly, this is about the fear that Tria gets kicked out, which could lead to a collapse of the government, new elections, and the League gaining even further,” said Commerzbank strategist Christoph Rieger.
“Or it may mean that they agree on a budget that’s at odds with the EU,” he said, adding that this would imply heavier borrowing and greater bond supply.
Italy’s two-year and five-year government bond yields rose 25 basis points at one stage to eight-week highs before settling at 1.11 percent and 2.18 percent respectively, higher by about 14 bps each on the day. [GVD/EUR]
Oil prices edged lower after the previous day’s rally, which was driven by an industry report suggesting U.S. crude stockpiles would soon decline again after a surprise rise in the latest week. [O/R]
Brent crude futures were down 0.04 percent at $73.44 a barrel after surging 1.5 percent on Thursday.
Copper on the London Metal Exchange recovered after falling for a third straight session, last trading at $6,217.50 per tonne. With trade tensions hurting demand, the industrial metal was down 2.7 percent for the week.
(For a graphic on ‘World FX rates in 2018’ click http://tmsnrt.rs/2egbfVh)
(Refiles to correct bullet on MSCI ACWI and time on U.S. payrolls)
(Reporting by Ritvik Carvalho; additional reporting by Abhinav Ramnarayan in LONDON and Asia markets team; Editing by Catherine Evans)
