Global Markets Snap Four-Day Losing Streak

Share markets in Asia and Europe regained ground on Tuesday after US President Donald Trump faced growing pressure from political allies to pull back from proposed steel and aluminum tariffs and a potential global trade war.

European sentiment was also supported after Germany reformed its coalition government to end more than five months in political limbo and as initial unease caused by a hefty election vote for anti-establishment parties in Italy began to ebb, Reuters reported.

Italian bonds gained and shares bounced almost 1% having slipped to a six-month low after the weekend vote.

Europe’s big three—Britain’s FTSE, Germany’s Dax and France’s Cac—were up 0.5-1% too, with euro a fraction higher and the pound a touch weaker as the dollar steadied.

“Over and above the noise about (US) protectionism we are getting now, we would need to see real evidence it is damaging growth and that is going to take some time,” said head of global macro strategy at State Street Global Markets, Michael Metcalfe. “...We have been here before in 2002 and 2003 with steel tariffs and that wasn’t devastating.”

After Wall Street’s S&P 500 had put on more than 1%, Asia’s bourses rallied in concert overnight. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.5%, snapping five straight days of losses. Japan’s Nikkei jumped 1.8% from a five-month low, helped too by reassurances from the head of the Bank of Japan that it would not suddenly end stimulus.

South Korean shares also erased the remainder of the hit they took after Trump’s tariff warnings last week. The country is seen as being among the most exposed in Asia due to the large amount of steel it exports to the United States.

Other big gainers included Hong Kong which bounced more than 2% while stocks in South Africa matched those gains, also helped by data showing the economy grew by a forecast-beating 3.1% in the fourth quarter of 2017, largely driven by a recovery in agriculture.

The rand soared to the strongest level in over a week, gaining 0.7% against the dollar while local bond market yields edged lower.

The positive momentum also swept through emerging Europe with Hungary rising 1.2%, bolstered by data showing economic growth accelerated to 4.4% in the fourth quarter.

 Rate Expectations

The threat of a trade war is not the only source of tension for the world’s financial markets. As the global economy steams ahead, investors have become increasingly concerned that US inflation, which has been subdued since the 2008 financial crisis, could finally pick up and lead to fast interest rate hikes.

The European Central Bank meets this week and looks almost certain later this year to end its three-year-old, €2.5 trillion ($3.08 trillion) stimulus program.

U.S. 10-year bond yields had reared back up to 2.889% on Monday and most eurozone yields—with the exception of those in Italy—were following suit with German Bunds off a five-week low at 0.65%.

“The ECB is going to be presenting growth forecasts that are likely to be stronger, but will be at pains to stress that the move away from monetary easing will be delicately done,” said Peter Chatwell, head of euro rates strategy at Mizuho.

The euro traded at $1.234, having extend its recovery from a seven-week low of $1.215.

In Italy, where currency traders are keeping an eye on post-election developments as none of the three main factions has emerged with enough seats to govern alone, President Sergio Mattarella, is expected to open formal coalition talks in April. Early elections are possible if no coalition accord is found.

The Canadian dollar was stuck near an eight month low at C$1.299. Canada is most exposed US tariff threats but its central bank holds a rate meeting on Wednesday and if it keeps the door open to further hikes, the currency “is likely to be able to resist further notable depreciation,” Commerzbank said.

Currencies elsewhere were mixed, with the Mexican peso firming 0.2% to one-week highs after the latest round of NAFTA trade talks wrapped up amid reports of some progress.

The Russian ruble dipped 0.3% as oil prices drifted lower. Turkey’s lira was steady. Investors are awaiting Wednesday’s Turkish central bank meeting after February inflation came in stronger than expected.