Global Markets: Dramatic stock market rally runs out of stream

By Abhinav Ramnarayan

LONDON (Reuters) - A global equity rally fuelled by a dramatic surge on Wall Street ran out of steam on Thursday, setting U.S. shares up for a weak opening after a fall in Chinese industrial profits offered a reminder of the pressures on the world economy.

Still, world stocks stayed off near two-year lows, lifted by Wednesday's 1,000 point-plus surge on the U.S. Dow Jones index which was triggered partly by the strongest holiday sales in years.

Stocks in Asia and Europe initially took their cue from this rally, pushing the MSCI world index, which tracks shares in 47 countries, 0.4 percent higher, adding to a 2.3 percent spike on Wednesday, when the previous session, rising off a 22-month low hit on Christmas Eve.

 

But the gains halved by 1130 GMT as a pan-European equity index fell 1.1 percent after a strong open and export-reliant German shares lost 2 percent. Equity futures for the Dow Jones index fell 1.5 percent while Nasdaq and S&P500 appeared set for even weaker openings.

"Yesterday was a blowout day for U.S. equity markets which triggered optimism that this could be a key reversal day but the upward momentum has not really followed through into Asia and Europe," said Lee Hardman, an analyst at MUFG in London.

"One reason is that maybe the sharp move higher was driven by year-end rebalancing, which exaggerated the scale of the rebound, and now we have reverted to the trend which has been in place most of this month."

While Japanese and Australian shares rose strongly, markets in mainland China as well as Hong Kong closed 0.4 percent weaker after data showed earnings at China's industrial firms dropped in November for the first time in nearly three years.

A Reuters report added to the gloom around the world's second-biggest economy, saying the White House was considering barring U.S. firms from buying telecoms equipment from China's Huawei and ZTE.

That overshadowed positive noises from the U.S. government on trade talks with Beijing, its efforts to temper the White House's recent broadsides against the Federal Reserve and a Mastercard Inc report that U.S. holiday shopping sales had risen the most in six years in 2018.

"So far, we don't see a shift in fundamentals. Trade tensions between the U.S. and China remain the biggest unknown factor for 2019," said Hussein Sayed, a strategist at online brokerage FXTM.

There were also renewed concerns in Italy, where troubled lender Banca Carige was denied a cash call by its largest shareholder, pushing its shares down 12.5 percent.

OIL IS NOT WELL

The concerns over a faltering global economy and signs of a crude oil glut pressured oil prices, sending Brent futures 1.7 percent lower to $53.5 a barrel and partly reversing Wednesday's 8 percent jump.

That rise was triggered by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, agreeing to limit output by 1.2 million barrels per day (bpd).

U.S. Treasury yields also reversed direction after rising sharply on Wednesday, dropping three basis points to 2.765 percent.

Another safe-haven, gold, was up 0.4 percent, remaining just below a six-month peak hit earlier this week.

Investors also bought yen, pushing the dollar 0.4 percent lower versus the Japanese currency and forcing it to cede some of its 1 percent overnight rise. Against a basket of currencies it was down 0.3 percent.

"We have started to see the yen regain its place as the safe haven of choice," MUFG's Hardman said.

(Reporting by Abhinav Ramnarayan; additional reporting by Sujata Rao; Editing by Toby Chopra and Gareth Jones)