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Thursday, 28 November 2019

Stocks stop short of new peaks as Sino-U.S. tensions weigh

November 29, 2019

By Hideyuki Sano

TOKYO (Reuters) – Global shares ticked up on Friday, but hesitated to test an all-time peak as investors worried a new U.S. law backing Hong Kong protests could derail Washington’s and Beijing’s efforts to end their trade war.

MSCI All Country world index <.MIWD00000PUS>, which tracks shares in 49 countries, were up 0.05% at 549.62, and would need to rise only 0.2% to reach all-time peak hit in January last year before the start of U.S.-China trade war.

MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> also ticked up 0.05% in early Friday trade while

Japan’s Nikkei <.N225> gained 0.27%.

U.S. S&P 500 mini futures <ESc1> were down 0.1%. New York markets were shut on Thursday for Thanksgiving holiday and with many investors seen away also on Friday, uncertainties remain on how U.S. markets will perceive the latest clash between Washington and Beijing over Hong Kong.

China warned the United States on Thursday it would take “firm counter measures” in response to U.S. legislation backing anti-government protesters in Hong Kong.

“Since the U.S. legislation was approved unanimously by the U.S. Senate and by all but one lawmaker in the House of Representatives, the law has been expected to take effect,” said

Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“It has been also expected that China will express harsh words against it. The question is what real actions Beijing will take. The working assumption for most investors is that this will not derail the trade talks, given China is suffering from an economic slowdown,” he said.

On the whole, investors are now betting that while the law spoils the mood it would not change the game, underpinning many risk assets.

Sentiment in the region has enjoyed an additional boost from a strong performance this week of Alibaba Group shares <9988.HK>, Asia’s largest firm by market capitalization. Alibaba has risen 16% since their IPO in Hong Kong on Tuesday.

However, major currencies were kept in tight ranges amid a dearth of any other significant developments in Sino-U.S. trade talks.

Against the yen, the dollar traded at 109.52 yen <JPY=>, near its six-month peak of 109.61 set on Wednesday.

The euro stood at $1.1010 <EUR=>, stuck in a tight range for the past week.

The British pound traded at $1.2910 <GBP=D4>, staying in its $1.28-1.30 range since mid-October.

As trading in major currencies slumbers, their implied volatilities, key gauges of expected swings measured by their option prices, plumbed to new record lows this week.

One exception was the Chilean peso, which has plunged 3.5% so far this week to an all-time low, prompting the central bank to unveil $20 billion foreign currency interventions program.

The peso has plummeted more than 10% this month following more than a month of protests over inequality that turned violent again this week.

Oil prices were little changed on Friday but look set to have one of the best performances in recent months in November, with Brent futures <LCOc1> up 6.0% so far this month, which would be the biggest gain since April.

U.S. crude futures <CLc1> were little changed at $58.09 per barrel early on Friday. They have risen more than 7% this month.

Graphic: Asian stock markets (https://ift.tt/30eIs73)

(Editing by Sam Holmes)

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