By Dhara Ranasinghe
LONDON (Reuters) -World markets found steadier ground on Monday after being whipsawed by broadsides in the U.S.-China trade war, while gold hit new record highs in a sign that uncertainty remained high.
While U.S. President Donald Trump had threatened 100% tariffs on China from November 1 and Beijing said it could take countermeasures, he sounded more conciliatory on Sunday, posting that the U.S. did not want to “hurt” China.
European shares were broadly higher, while U.S. stock futures also firmed although trading was subdued by a holiday in Japan and the United States.
France remained in the spotlight with reappointed prime minister Sebastien Lecornu facing pressure to get a budget deal across the line.
“The stabilisation in markets is encouraging,” said Rory McPherson, chief investment officer at Wren Sterling in London.
“Given everything that is going on with the (U.S. government) shutdown, and political turmoil in France and Japan, markets have been strong. A pullback would be healthy.”
Beijing defended on Sunday its curbs on exports of rare earth elements and equipment as a response to U.S. aggression, but stopped short of imposing new levies on U.S. products.
Goldman Sachs chief economist Jan Hatzius said that while he still expected an extension of the current tariff pause, recent developments suggested a wider range of outcomes was possible.
JAPANESE LEADERSHIP NOW IN DOUBT
Japanese markets had their own problems with the ascension of new LDP leader Sanae Takaichi to prime minister now in doubt, contributing to a sharp rebound in the yen and a 5% dive in Nikkei futures on Friday.
Japan’s Nikkei was closed on Monday, while MSCI’s broadest index of Asia-Pacific shares outside Japan tumbled 1.5%.
Chinese blue chips fell 0.5%, though the rare earth and semiconductor sectors both firmed. Data pointed to some resilience in trade with exports rising 8.3%, almost twice the forecast, and imports up strongly.
And in a sign that global uncertainties remained strong, gold hit fresh record highs above $4,000 an ounce, while Asia stocks fell sharply.
BofA commodities analysts said in a note on Monday that they had raise their forecast for gold to $5,000 an ounce for next year from $4,400.
U.S. stock futures pointed to a rebound on Wall Street, with S&P 500 and Nasdaq stock futures up more than 1% each. While the New York Stock Exchange and Nasdaq are open for trade on Monday’s Columbus Day holiday, bond markets are closed.
Earnings season kicks off this week with major banks reporting, including JPMorgan, Goldman Sachs, Wells Fargo and Citigroup.
S&P 500 companies overall are expected to have increased earnings by 8.8% in the third quarter from a year earlier, according to LSEG IBES, and strong results will be needed to justify the market’s high valuations.
“Our guess is you might get, at least in the very near term, a more volatile and directionless environment for some of the risky assets. Ultimately, whether or not you go against the market in this environment depends on your conviction,” said Homin Lee, senior macro strategist at Lombard Odier.
FRANCE TURMOIL
Politics cast a cloud over Europe as the French presidency announced Lecornu’s new cabinet line-up on Sunday, reappointing Roland Lescure, a close ally of Emmanuel Macron, as finance minister.
Lecornu will face a no-confidence vote most likely on Thursday and it’s unclear if he has the votes needed to survive.
France’s 10-year bond yield was little changed at around 3.47% and French stocks rallied 0.5% in a sign that investors were holding on to hopes for some near-term political stability.
“Even if, very big if, Lecornu now lasts longer in office than on his first attempt, he will face an uphill struggle to get a budget for 2026 through the divided parliament by the end of the year,” said Holger Schmieding, chief economist at Berenberg.
Currency markets also saw some stabilisation after Friday’s rush into the traditional safe havens of the Japanese yen and Swiss franc. The dollar rallied 0.6% to 152 yen, having slid 1.2% on Friday from a top of 153.29.
The euro slipped 0.25% to $1.1586, while the dollar gained 0.5% on the Swiss franc to 0.8038. The dollar index was steady, after losing 0.6% on Friday.
In bond markets, cash Treasuries were closed for a holiday, while government bond yields in Europe nudged up.
U.S. and European bond yields had hit multi-week lows in the wake of Trump’s tariff threat on Friday , while investors had added to wagers on more rate cuts from the Federal Reserve.
“Interestingly, the bond market held up on Friday and that was encouraging given the recent selloff in long-dated bonds,” said Wren Sterling’s McPherson.
Futures implied around a 98% chance of a quarter-point cut from the Fed later this month, and a similar probability of another move in December.
Fed Chair Jerome Powell has a chance to offer his guidance when he speaks on the economic outlook at the NABE annual meeting on Tuesday.
A host of other Fed members are appearing this week, along with a who’s who of central bankers attending an IMF-World Bank meeting in Washington.
Oil prices also regained some ground on hopes the U.S. and China would find some compromise on trade to avoid fresh tariffs. [O/R]
Brent bounced 1.7% to $63.8 a barrel, while U.S. crude rose 1.9% to $60 per barrel.
(Reporting by Dhara Ranasinghe in London and Wayne Cole in Sydney; Editing by Ros Russell)
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