Stock markets rally on hopes for stimulus, trade progress

AFP – Global stocks rallied Monday on rising optimism about stimulus measures in China and Germany as investors welcomed more conciliatory signs in the long-running US-China trade war.

Germany’s central bank, the Bundesbank, warned that Europe’s biggest economy could enter a recession in the third quarter, a statement that further fueled expectations that a stimulus program would be coming.

Market watchers also expect further stimulus measures by China to boost growth and are confident Federal Reserve Chair Jerome Powell will communicate dovish direction at a big central bank gathering at the end of the week in Jackson Hole, Wyoming.

Analysts also cited the Trump administration’s decision to delay by 90 days a ban on US companies doing business with Huawei, seen as a conciliatory step in the running US-China trade fight and coming on the heels of statements from US President Donald Trump and other top administration officials emphasizing efforts to revive talks with Beijing.

"The market is looking at the positives out there," Manulife Asset Management’s Nate Thooft told AFP, adding that the low trading volumes in the sleepy August period have sharpened market swings in recent sessions.

Major US indices gained more than one percent after European and Asian bourses earlier also finished solidly higher.

Germany’s DAX index jumped 1.3 percent in spite of the downcast report from the central bank.

"The economy could contract again slightly" this summer, Germany’s central bank said in its monthly report, following a 0.1-percent decline in gross domestic product (GDP) in the second quarter.

"According to data currently available, industrial production is expected to shrink markedly in the current quarter as well."

As US-China tensions intensify, economists have urged Berlin to fork out cash to avoid a recession, but Chancellor Angela Merkel’s government has previously said things were not yet bad enough to warrant loosening the purse strings.

On Sunday, German Finance Minister Olaf Scholz hinted at a potential intervention, stating that Germany could "fully face up to" a new economic crisis.

"It is sometimes important, when things change completely, for example, for us to have enough strength to react," he said during an open house day at government offices.

China has meanwhile announced an interest rate reform that it said would lower borrowing costs for companies.

"The week is off to a pleasant start, with traders seemingly buoyed by Chinese lending rate reforms and the prospect of German fiscal stimulus," said Oanda analyst Craig Erlam.

– Key figures around 2015 GMT –

New York – Dow: UP 1.0 percent to 26,135.79 (close)

New York – S&P 500: UP 1.2 percent at 2,923.65 (close)

New York – Nasdaq: UP 1.4 percent at 8,002.81 (close)

London – FTSE 100: UP 1.0 percent at 7,189.65 (close)

Frankfurt – DAX 30: UP 1.3 percent at 11,715.37 (close)

Paris – CAC 40: UP 1.3 percent at 5,371.56 (close)

EURO STOXX 50: UP 1.2 percent at 3,369.19 (close)

Tokyo – Nikkei 225: UP 0.7 percent at 20,563.16 (close)

Hong Kong – Hang Seng: UP 2.2 percent at 26,291.84 (close)

Shanghai – Composite: UP 2.1 percent at 2,883.10 (close)

Euro/dollar: DOWN at $1.1078 from $1.1090 at 2100 GMT Friday

Pound/dollar: DOWN at $1.2134 from $1.2149

Euro/pound: UP at 91.30 pence from 91.29 pence

Dollar/yen: UP at 106.66 yen from 106.38 yen

Brent North Sea crude: UP 1.9% at $59.74 per barrel

West Texas Intermediate: UP 2.4% at $56.21 per barrel