European shares, oil at three-month highs but no love for euro

London (Reuters): Optimism about US-China trade talks and bumper earnings lifted European shares to a three-month high on Thursday, though news that Germany only dodged recession by the narrowest of margins left the euro feeling unloved.

Markets were generally in a cautious mood as investors hung on for any hint of progress in the tariff talks amid reports the White House could extend the deadline for a deal. Stocks extended gains regardless. Strong results from Nestle, drugmaker AstraZeneca and plane giant Airbus lifted the pan-European STOXX 600 0.5% to put it on course for its fourth day of gains and best week since early November. 

“Cupid continues to shoot out bullish arrows across financial markets with last week’s blip almost forgotten about for now,” Deutsche Bank said in a morning note.

The euro did not share the feeling however. It struggled near a three-month low  as data showed Germany’s economy stalled in the fourth quarter, with fallout from global trade disputes and Brexit threatening to derail a decade-long expansion in Europe’s economic powerhouse. A US proposing stiff new sanctions on Russian banks and oil and gas firms sent shares in Moscow tumbling more than 2% and ignited rouble FX volatility gauges. On China, President Donald Trump said on Wednesday that trade talks were “going along very well” and, with Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer in China, investors had been daring to hope for good news. Bloomberg said Trump was considering pushing back the March 1 deadline for higher tariffs on Chinese goods by 60 days.

But expectations have been disappointed before, the reaction in Asian share markets was guarded. Shanghai blue chips closed broadly flat, having jumped 2% on Wednesday to levels last seen in late September.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.15%, though that was off a peak last seen in early October.

Japan’s Nikkei touched its highest this year as a weakening yen boosted export stocks. The Australian dollar, often used as a liquid proxy for China risks, gained 0.4% to $0.7114 and S&P 500 futures added 0.15%. 

The Aussie dollar had already got a small lift when Chinese trade data handily beat expectations in a welcome relief for the global economy.

Beijing reported exports rose 9.1% in January from a year earlier, confounding forecasts of a fall, while imports dipped by a surprisingly slight 1.5%.

The recent improvement in risk appetite undermined the safe haven yen and propelled the dollar to its best levels of the year so far at 111.05.

The subdued European data pushed long-term market inflation expectations to new lows, while putting downward pressure on bond yields in the bloc.

The single currency was at $1.1280 above the floor of a $1.1213/1.1570 trading range that has held since mid-October.

Sterling was also on edge at $1.2845 ahead of another parliamentary vote on British Prime Minister Theresa May’s Brexit plan.

That left the dollar near its highest since mid-December against a basket of currencies at 97.059.

In commodity markets, spot gold edged up 0.18% to $1,308.56 per ounce.

Oil prices found support as top exporter Saudi Arabia said it would cut crude exports and deliver an even deeper output cut.

US crude was up 56 cents, or 1%, at $54.42 a barrel, while Brent crude futures rose 97 cents to $64.50, its highest since November.