Trade optimism lifts stocks, but 2018 ends in red

NEW YORK (Reuters) – Equities around the world rose on Monday as possible progress in resolving the trade dispute between the United States and China engendered some investor optimism in what has been a punishing end of year for markets.

The U.S. benchmark S&P 500 stock index advanced in light trading volume after U.S. President Donald Trump said he held a “very good call” with China’s President Xi Jinping on Saturday to discuss trade and said “big progress” was being made.

Chinese state media were more reserved, saying Xi hoped the negotiating teams could meet each other halfway and reach an agreement that was mutually beneficial.

The rise in U.S. equities mirrored that in Asian and European markets, which were also buoyed by trade optimism.

Despite Monday’s advance, equities ended the year largely in the red, victims of investor anxiety over trade tensions and slowing economic growth. Asian and European shares had been sluggish for much of the year, and in recent months, U.S. stocks followed suit.

“If the European economy continues to decelerate and the Chinese economy decelerates because of tariffs, there is definitely going to be spillover to the United States,” said Shannon Saccocia, chief investment officer at Boston Private.

The S&P 500 dropped more than 9 percent in December, its largest decline since the Great Depression. For the year, the index slid more than 6 percent, its biggest drop since the 2008 financial crisis.

Asia-Pacific shares outside Japan ended down 16 percent for the year, while the STOXX 600 was more than 13 percent lower. MSCI’s gauge of stocks around the globe .MIWD00000PUS fell 11.1 percent in 2018.

A further blow to the Chinese economy could spur a quicker resolution to the U.S.-China trade dispute and thus boost global equities, Saccocia said. Survey data on Monday showed Chinese manufacturing activity contracting for the first time in two years even as the service sector improved.

On Monday, the Dow Jones Industrial Average .DJI rose 265.06 points, or 1.15 percent, to 23,327.46, the S&P 500 .SPX gained 21.11 points, or 0.85 percent, to 2,506.85 and the Nasdaq Composite .IXIC added 50.76 points, or 0.77 percent, to 6,635.28.

MSCI’s emerging markets index .MSCIEF rose 0.32 percent, while the MSCI world stock index .MIWD00000PUS gained 0.66 percent.

(GRAPHIC: Global markets in 2018- tmsnrt.rs/2AmRgNB)

NO MORE HIKES

Yields on U.S. Treasuries fell on Monday, keeping with the trend over the past two months as investors moved to lower-risk investments.

Benchmark 10-year notes US10YT=RR last rose 15/32 in price to yield 2.686 percent, compared with 2.738 percent late on Friday.

The fall in Treasury yields reflects expectations of a slowdown, if not a pause altogether, in the Federal Reserve’s progression of interest-rate hikes.

The precipitous drop in yields has undermined the U.S. dollar in recent weeks. The dollar index .DXY, which measures the greenback against a basket of six other currencies, was down 0.3 percent and on track to end December with a loss. It is, however, still set for its highest yearly percentage gain since 2015.

On Monday, the dollar fell to a six-month low against the yen JPY=.

The euro EUR= was up 0.2 percent to $1.1459, on track to end the year down nearly 5 percent against the dollar.

Oil posted its first year of losses since 2015, with Brent crude futures LCOc1 down 19.5 percent and U.S. West Texas Intermediate crude futures CLc1 down 24.8 percent.

On Monday, Brent crude settled 59 cents higher, or 1.11 percent, at $53.80 a barrel. U.S. crude settled up 8 cents, or 0.18 percent, at $45.41 a barrel.