LONDON — Renewed hopes for trade talks kept stock markets mostly in the black Friday after China said it would not retaliate against the latest US tariffs, setting up a positive end to a volatile week.
New trade optimism helped alleviate gloom about predictions for a coming slowdown in the world economy, analysts said.
"We may be facing up to the reality of recession but optimism continues to flow through the veins of investors following comments from the Chinese Commerce Ministry on Thursday," said Craig Erlam, senior market analyst at Oanda trading group.
The easing tensions helped China's yuan strengthen slightly against the dollar, having fallen to an 11-year low earlier in the week.
Key European equity markets were higher at the close, but Milan fell after Italy's anti-establishment Five Star Movement (M5S) warned that its tentative coalition deal with the centre-left Democratic Party could still fall apart.
In the government bond market, the spread between Italy's bond yields and those of rock-solid Germany widened, indicating that investors were demanding a higher risk premium in return for investing in Italian sovereign debt.
Sterling rose against the euro and traded steady against the dollar after heavy Brexit-fuelled losses earlier in the week.
The dollar was about 0.5 percent higher against the euro, showing little reaction to US President Trump lashing out at the Federal Reserve for allowing a strong dollar to make American exports less competitive.
US-China trade worries were "relatively subdued" and bond yields stabilised, said analysts at Charles Schwab, but few investors seemed to have the stomach to carry big positions into the long Labor Day weekend.
US stock markets rose at the opening bell, but gains on the DJIA index had mostly fizzled out by the late New York morning, and the Nasdaq and S&P 500 both slipped into the red.
Earlier, Hong Kong started Friday more than one percent higher, but finished with a gain of only 0.1 percent as the arrest of activists fuelled fresh worries about violent protests in the city.
Dealers brushed off data Thursday showing the US economy grew at a slower pace than initially thought in the second quarter. Those figures were mitigated by the fact that consumer spending remained strong.
Elsewhere, oil prices slumped after a three-day surge on positivity surrounding trade talks was coupled with a plunge in US stockpiles that pointed to improving demand.
On the corporate front, shares in Airbus rose after the Euroopean aircraft manufacturer earlier said it had agreed to sell 42 planes to Malaysian low-cost airline AirAsia X in a deal worth $5.0 billion before expected discounts.
The Asian carrier has placed a firm order for 12 long-range A330neo planes and 30 medium-range A321XLR models.
If you’re an investor convinced the trade war is going to cause a recession sometime soon, the market saw it your way in August, delivering three separate plunges of 2.6% or more in the S&P 500.
In August equities, bone-rattling reversals were the norm. Going by one metric, “all-or-nothing days” in which up or down share volume got to historical extremes on the New York Stock Exchange, the month saw as much back-and-forth volatility as any in four years.
Naturally, despite all the tumult, shares completed the month with one of their smallest wire-to-wire moves of the year -- down 1.8% on the S&P 500. It was another lesson in humility for anyone trying to make sense of market swings. However important day-to-day moves feel emotionally, they carry all the meaning of soda fizz.
“It was like the last nine months on steroids,” said Peter Mallouk, president of Creative Planning, a wealth-management firm with about $43 billion in assets. “All of it smashed into a few weeks,” he said. “The swings with the Fed and tariffs were just much more significant and the stakes get higher as time goes on.”
Odds are, it’s a world US. investors will need to get comfortable with as questions about trade and global growth linger into an election year. However quickly sell-offs get unwound these days, markets are showing themselves vulnerable to moves that two years ago were all but unheard of.
Stitching together a narrative for August got particularly futile as the month wore on. Big down days were framed as a rebuke of the president’s policies, signs a recession is at hand or evidence the Federal Reserve went too far. Big up sessions came a day later and were said to show the strength of earnings, the power of stimulus and the benefits of an expanding economy. Thesis got drubbed today? It should be fine tomorrow.
In the end, the bull-bear symmetry was near-perfect. Twenty-two August trading days, 10 down, 12 up. Volatility indexes that spent parts of the month 50% higher than where they started settled back to where they began. Prices were chaotic, but locked in a range. Three times the S&P 500 plunged 2% or more, and three times it bounced from almost the exact same floor.
Anytime markets get moving this jarringly, scrutiny, informed and otherwise, is trained on traders using computers, entities that get lumped under labels like “the algos” but who in truth at this point are everyone. Only a machine could be suckered into reacting to Trump’s bloviation so credulously, the theories go, and it’s making markets unsafe for human habitation. — Agencies
