By Marc Jones
LONDON (Reuters) – World shares inched higher on Thursday, buoyed by U.S. President Donald Trump’s promise of a first trade deal in his global tariff war – tipped to be Britain – while the dollar gained as markets pushed out the chance of near-term Fed rate cuts.
Traders also got a widely expected quarter-point rate cut from the Bank of England while Sweden and Norway also hinted they could also cut theirs later in the year given the current global uncertainty.
Europe’s main stock markets tested recent highs, led by a more than 1% rise from Germany’s export-heavy DAX and a 0.4% gain for London’s FTSE, plus a small lift for sterling against the euro, on the trade deal signals.
Trump had posted on social media that he will hold an Oval Office press conference later on Thursday, saying it would be a “great honor to have the United Kingdom as our FIRST announcement”.
Wall Street futures were up over 1% too, with economists eager to see the deal’s details, especially whether the baseline 10% tariff Trump has slapped on all countries up until now can be negotiated away.
Investors are also anxiously awaiting planned talks between U.S. and Chinese officials in Switzerland on Saturday, which could mark the first step in dialling down the damaging trade war between the world’s top two economies.
“There is definitely a change of tone from the U.S. administration on both trade and Fed independence,” AXA’s Chief Economist Gilles Moex said, referring to the lull the in criticism of Fed chief Jerome Powell that rattled markets last month.
The U.S. central bank left its interest rates in a 4.25%-4.5% range for a third straight meeting on Wednesday alongside a warning that the stagflationary risks of higher inflation and higher unemployment had risen.
Powell said the Fed was in “a good place” in terms of its policy, given that it wasn’t clear if the U.S. economy will continue its steady growth, or wilt under mounting uncertainty and a possible spike in inflation.
“It’s not at all clear what the appropriate response for monetary policy is at this time,” Powell had explained, prompting markets to scale back the chance of a June rate cut to just 20%, from 30% a day earlier, and price a July move at 70%, compared with a near-certainty just a week ago.
UNCERTAINTY
In the bond markets, 10-year U.S. Treasury yields edged up 4 bps at 4.21%, while Germany’s 10-year yield – the euro area’s benchmark – also rose fractionally to 2.50%. [GVD/EUR]
The Fed’s wait-and-see message also gave the dollar index a lift. After a brief wobble in Asia, it regained traction to sit 0.4% higher in Europe right on psychological 100 points threshold. [/FRX]
Trade deal hopes also saw Britain’s pound climb as much as 0.5%, although it had given most of it back by the time the Bank of England lowered its benchmark rate to 4.25%.
Governor Andrew Bailey and his BoE colleagues reiterated the need for a gradual and careful approach saying, “the past few weeks have shown how unpredictable the global economy can be”.
But analysts think that stance could soon change. PGIM’s Guillermo Felices said his firm expects three more rate cuts after this one as the BoE begins to put more focus on the spillovers from the global trade war.
“The front end rates market is almost in line with our view,” he added, pointing to pricing of the next cut coming in July plus two more before the end of the year.
TECH TALK
Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan had ended down 0.3% while Japan’s Nikkei gained 0.4% and Chinese blue chips rose 0.5% as they continued to recover ground lost since Trump’s “Liberation Day” tariffs last month.
Wall Street was looking to build on its late rally on Wednesday after reports that the Trump administration is planning to rescind and modify a Biden-era rule that curbed the export of sophisticated artificial-intelligence chips.
Nvidia shares jumped 3% although Google’s stock suffered a 7.2% tumble on reports that Apple is readying a new artificial-intelligence enhanced web browser.
In commodities markets, the trade hopes lifted oil prices after they had fallen more than $1 on Wednesday. Brent was at $62 per barrel, up 1.6% on the day with U.S. crude up a similar amount too.[O/R]
Safe-haven gold prices dropped 0.7% to $3,341 an ounce on the brighter mood to edge them further away from last month’s record high of $3,500.
($1 = 0.7527 pounds)
(Reporting by Marc Jones; Editing by Chizu Nomiyama)
