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Stock markets and industrial commodities are rallying, while gold is retreating, as optimism about the Trump presidency and better data out of China spark a fresh pulse of global risk appetite.

The upbeat tone is crimping demand for sovereign bonds and supposed currency havens like the yen.

What to watch

A batch of UK economic data are due for release at 09:30 GMT, including the trade balance, construction output and manufacturing production, all covering December.

The pound is relatively steady ahead of the news, easing just 12 pips to $1.2481. In the US at 15:00 GMT the University of Michigan preliminary February consumer sentiment index will be published. Analysts expect it to dip from 98.5 in January to 97.9, according to Reuters.

Hot topic

Equity markets worldwide are buoyant after Wall Street hit at a fresh record on Thursday.

Hopes that US president Donald Trump would soon unveil his tax cutting plans helped pushed the S&P 500 to 2,308, its best ever close, and futures indicate the benchmark will gain a further four points when trading gets under way later in New York.

The bullishness is garnering additional momentum from news that Mr Trump told his Chinese counterpart that the US would honour the “one China” policy, raising hopes that the White House is taking what some consider a more pragmatic approach to foreign relations.

And in another boost for investor sentiment, trade data out of China on Friday, which showed exports up 7.9 per cent in January and imports jumping 16.7 per cent, are bolstering optimism about the health of the world’s second biggest economy.

Growth focused assets are subsequently finishing the week in fine fettle. The pan-European Stoxx 600 equity index is up 0.4 per cent, near a 13-month high as resources groups gain ground.

Tokyo’s Topix index rose 2.2 per cent, lifted also by a weaker yen, and Australia’s S&P/ASX 200 gained 1 per cent. In Hong Kong, the Hang Seng index advanced 0.3 per cent, while in mainland China the Shanghai Composite index was up 0.4 per cent.

“The markets in Asia today are in a ‘happy mood’ as the reflation theme is back with a bang and geopolitical worries in the region just took a turn for the better,” said analysts at Citi.

Commodities

Raw material prices are chipper, boosted by the broad market optimism and more specifically evidence contained in the Chinese trade data that showed the country buying up commodities at a near record pace.

Iron ore prices are near three year highs after imports into China jumped 12 per cent in the year to January. The London-based copper contract is adding 0.5 per cent to $5,879 a tonne amid strength across the base metals sector.

Oil prices are resting comfortably after climbing further from lows hit earlier in the week as fears about oversupply faded somewhat. Brent crude, the international benchmark, is up 0.3 per cent at $55.78 a barrel after gaining 0.9 per cent on Thursday. West Texas Intermediate, the US marker, is up 0.2 per cent at $53.11 a barrel after rising 1.3 per cent the day before.

The stronger dollar, higher Treasury yields and easing geo-political tensions are pushing gold lower. The precious metal, which mid-week hit a three-month high of $1,245 an ounce, is off 0.7 per cent to $1,222.

Forex

A belief that president Trump’s mooted tax plans will attract capital back to the US is lifting the greenback.

The dollar index, which tracks the buck a against a basket of peers, is up 0.1 per cent to 100.74, taking its gains for the week to 0.8 per cent.
The euro is off 0.1 per cent to $1.0639 as investors remain wary about the outcome of upcoming elections across the continent.

Japan’s yen, which tends to sport a tight inverse correlation to investors’ risk appetite, is 0.5 per cent weaker against the dollar at ¥113.74 ahead of a meeting between prime minister Shinzo Abe and president Donald Trump.

China’s renminbi was 0.2 per cent weaker against the dollar at Rmb6.8780 after the central bank set the currency’s dollar trading band 0.2 per cent softer on Friday morning.

Fixed income

Sellers are dominant in the sovereign bond sector as funds are moved to “riskier” plays.

The 10-year US Treasury yield, which moves inversely to the bond price, is up two basis points to 2.41 per cent, while the more policy-sensitive 2-year note is up 1bp to 1.19 per cent.

Ten-year German Bund yields are adding 2bp to 0.33 per cent and equivalent maturity French paper is up 3bp to 1.03 per cent.

The yield on 10-year Australian government bonds rose 5bp to 2.69 per cent after the central bank revised down its long-term GDP growth forecasts.

Copyright The Financial Times Limited 2017. All rights reserved.
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