Markets climb on hopes of trade reconciliation, but brace for Fed head’s comments

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Nov. 28, 2018 / 12:30 PM GMT

By Reuters

Hopes for a thaw in U.S.-China trade relations at the upcoming G20 summit helped world shares inch to a one-week high on Wednesday, though fears of a no-deal Brexit outcome weighed on European markets.

While President Donald Trump talked tough on the trade tariffs issue ahead of a meeting with Chinese President Xi Jinping on Saturday, markets focused on comments by White House economic adviser Larry Kudlow, who held open the possibility that the two countries would reach a trade deal.

Kudlow’s comments helped Wall Street close higher and allowed Chinese and Japanese shares to rally 1 percent.

But the mood fizzled somewhat, after a Tuesday report that Trump may soon decide about new taxes on imported cars.

“An expectation is being priced into markets ahead of the G20 meeting that we will see some deal or at least a framework for a deal between Trump and (Chinese President) Xi Jinping,” said Bernd Berg, global macro strategist at Switzerland-based Woodman Asset Management.

“But if they come out with nothing this weekend, it’s going to be very bad.”

Futures pointed to a marginally firmer open on Wall Street.

The uncertainty over global trade as well as Brexit and Italy’s conflict with the European Union, have supported the U.S. dollar, which rose to a two-week high against a basket of currencies.

While the main driver for the greenback is the U.S. interest rate path, Rodrigo Catril, senior strategist at National Australia Bank, said it was also benefiting from the uncertain mood.

“Markets seem to be jumping at shadows at the moment and against this backdrop of uncertainty, the dollar remains the preferred option for weathering the storm,” Catril said.

With the currency index approaching 1-1/2-year highs reached earlier this month, traders are focusing on a speech by Federal Reserve Chair Jerome Powell to see if he offers clues on how many more times the Fed could raise interest rates.

While Fed Vice Chair Richard Clarida took a less dovish stance on Tuesday than some had expected and backed more rate rises, Powell and his colleagues have in recent weeks alluded to global volatility, leading many to speculate the bank’s three-year-long rate rise campaign could pause in 2019.

Berg said there had been some repricing of rate-rise expectations but said the Fed remained on track to tighten policy in December and early-2019 at least.