European stocks climb as investors brush off US-China tensions

Andrew Cummings
August 11, 2020

Gold fell on Tuesday as the dollar firmed after Beijing slapped sanctions on US officials in the latest flare-up in tensions between Washington and Beijing, with investors also keeping a close watch on negotiations over a USA stimulus plan.

Trump has sought to take matters into his own hands, signing executive orders and memorandums aimed at unemployment benefits, evictions, student loans and payroll taxes.

European equities advanced, extending last week's gains, as investors focused on the stimulus negotiations in the USA and embraced improving economic data out of China.

"Both parties are going to have to tread very carefully but they are going to have to move on and try to come to some kind of agreement", Kim Forrest, at Bokeh Capital Partners LLC, told Bloomberg TV.

"Who wants to be seen as the stingy bad guy even in times of great need?"

South Korea +1.51%, driven by surge in automakers shares.

The Australian dollar was subdued, down 0.1% versus the US dollar at 0.71525, after the country recorded a record-high daily increase in COVID-19 deaths on Monday. Japan's Nikkei () returned from a holiday with a 1.85% gain led by health care and industrial stocks and the Dangle Seng () bounced 2.3%.

The world index is now a whisker off February record peaks.

Stocks in Europe climbed on Tuesday as investors brushed off China's decision to sanction U.S. lawmakers for criticising the country's crackdown on Hong Kong.

"The bigger question for markets is whether these actions jeopardise the US-China trade talks on August 15 and markets will be looking closely for any Chinese retaliation", said Tapas Strickland, director of markets & economics at National Australia Bank.

Senior U.S. and Chinese officials will meet via teleconference on Saturday to review the implementation of their Phase 1 trade deal and likely air mutual grievances.

With China lagging far powering on electrical power and farm products purchases from the United States, it could examination markets' assumption that the trade romantic relationship is insulated from crumbling diplomatic ties concerning the two nations.

With investors anxious that the US recovery may lag behind those in other major economies, the dollar's two-year supremacy has slipped.

Jason Borbora-Sheen, portfolio manager at Ninety One Asset Management, said headlines would generate oscillations, but the issue did not pose serious risks "from an equity perspective or from a corporate perspective, simply because that issue has been at the forefront of investors (minds)".

Asian stocks were set for a cautious start, following a mixed Wall Street session.

The British pound was a tad lower at US$1.3057 after hitting a five-month high of US$1.3185 last week.

One factor underpinning the dollar's decline - and equity strength - is the declining real, or inflation-adjusted, Treasury yield.

"At least that is how the market seems to see it, which is why the U.S. Dollar is trading moderately stronger", she added.

Gold prices fell on Tuesday as the dollar's relative value against other currencies recovered, spurring some investors to lock in gains in bullion, which has soared to record levels of $2,000 per ounce.

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