Global shares shrug off trade tensions as US data reassures

London (Reuters): Global shares rose yesterday as worries over a trade war between the United States and other major economies took a backseat, with investors focusing on an easing of political risks in Europe and strong US jobs data.

The MSCI world equity index, which tracks shares in 47 countries, climbed 0.4%, while European stocks continued on their road to recovery with a 0.5% rise by 1107 GMT as tensions calmed in Italy and Spain.

“The mood is mainly positive due to better US job creation seen in (Friday’s) NFP data, which has carried stocks higher despite headwinds such as escalating trade disputes,” analysts at FX Pro Insights said. “The risk is that sentiment shifts and catches traders off balance as volatility increases.”

Following a week in which Italian stocks hit their lowest since July, Italy’s anti-establishment parties formed a coalition government on Friday (1 June) to end three months of political deadlock. Italian bond yields fell. They soared last week on fears a snap election would be called that might effectively become a referendum on euro membership.

The spread on Spanish bond yields over benchmark German bunds also narrowed after a new prime minister was sworn in Madrid, though Socialist Pedro Sanchez’s minority administration faces a tough baptism from a revived independence drive in Catalonia. The euro traded at $1.1723, well clear of last Tuesday’s 10-month low of $1.1506.

While the risk of political crisis receded in Europe, concerns over a possible global trade war rumbled on in the background.

Finance ministers of the closest US allies vented their anger on Saturday (2 June) over Washington’s imposition of metal import tariffs, setting the tone for a heated G7 summit next week in Quebec.

In a rare open show of divisions among the club of wealthy nations, six of the G7 member countries issued a statement asking US Treasury Secretary Steven Mnuchin to convey their “unanimous concern and disappointment” to President Donald Trump.

“The G7 summit this weekend could be equally terrible. There’s even talk that Trump may not go. Concerns on trade frictions are likely to continue to weigh on markets,” said Mitsubishi UFJ Morgan Stanley Securities Senior Investment Strategist Norihiro Fujito.

Washington also remained at odds with Beijing after US Commerce Secretary Wilbur Ross met Chinese Vice Premier Liu He. China warned the United States on Sunday that any bilateral agreements reached on trade and business would be void if Washington implemented tariffs and other trade measures.

But, this did not stop Asian shares from rallying. MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.3% to a high last seen on 17 May, while Japan’s Nikkei rose 1.4%.

Likewise, stocks futures pointed to a positive start for Wall Street, with EMini futures for the S&P 500 up 0.3%.

Signs of strength in the US economy helped keep bears at bay.

Data released on Friday showed US job growth accelerated in May, and the unemployment rate dropped to an 18-year low of 3.8%, indicating a rapidly tightening labour market.

“We had strong headline figures on employment, but the rise in wages was still well-contained and did not point to a sharp acceleration in inflation,” said Daiwa Securities Chief Global Strategist Hirokazu Kabeya.

The strong report added to a string of upbeat economic data, including consumer spending, industrial production and construction spending, making the Federal Reserve all but certain to raise interest rates at its policy meeting next week.

US Treasury yields edged higher, with 10-year paper at 2.9076%, while the dollar eased 0.4% against its currency basket to 93.802.

US crude futures traded lower at $65.40, back at their lowest levels in nearly two months. Rising US crude production, and a glut due to a lack of pipeline capacity, have pressured prices.

Global benchmark Brent was down 1.3% at $75.76.