SINGAPORE/LONDON - Global stocks and the dollar edged higher on Tuesday as trade talks between the United States and China were set to extend to a second day, giving investors some reason to believe tensions between the world's two largest economies may be easing.
US President Donald Trump put a positive spin on the talks after Monday's session.
Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and US Trade Representative Jamieson Greer were set to meet again in London on Tuesday with their Chinese counterparts.
Any progress in the negotiations is likely to provide relief to markets given that Trump's often-shifting tariff announcements and swings in Sino-US ties have undermined the two economies, disrupted supply chains and threaten to hobble global growth.
World stocks, as reflected by the MSCI All-Country World index, traded near record highs, while the dollar clawed its way higher against a range of currencies.
"While market participants are clearly taking a glass half-full view of the outlook, both on trade policy and more broadly, we don’t think that should be interpreted as a view that tariffs will be fully unwound," said Jonas Goltermann, deputy chief markets economist at Capital Economics.
Goltermann anticipates US duties on Chinese goods to settle at around 40 percent, while most analysts have said that the universal 10 percent levy on imports into the United States is here to stay.
In Europe, the STOXX 600 was flat on the day. Investor focus fell on vaccine makers after US Health Secretary Robert F. Kennedy Jr. sacked an entire panel of vaccine experts. Shares in GSK fell 0.6 percent, while shares of rivals Sanofi and Bavarian Nordic rose 0.6-1.3 percent.
Meanwhile, in Tokyo, Finance Minister Katsunobu Kato said policymakers were looking at measures to promote domestic ownership of Japanese government bonds, a day after Reuters reported that Japan is considering buying back some super-long government bonds issued in the past at low interest rates.
Yields on super-long JGBs rose to record levels last month due to dwindling demand from traditional buyers such as life insurers, and jitters over steadily rising debt levels globally.
The yield on the 10-year JGB was flat at 1.47 percent, while 30-year yields were up 1 bp at 2.92 percent, having retreated from late May's high of 3.18 percent.
In currencies, the dollar pared some of Monday's losses.
Against the yen, the dollar was steady at 144.6. The euro fell 0.13 percent to $1.14 while sterling dropped 0.5 percent to $1.3477 after weak UK employment data.
Quality not size
Trump's erratic trade policies and worries over Washington's growing debt pile have dented investor confidence in US assets, in turn undermining the dollar, which has already fallen more than 8 percent this year.
"It's not that the Americans are blowing up their fiscal situation because the deficit is going to remain more or less stable. But the quality of the deficit has degenerated," Samy Chaar, an economist at Lombard Odier, said.
"If you invest, and spend on productive investments, you'll get macro payoffs, because you're going to develop an industry, you're going to strengthen your economy, you're going to create jobs, you have a payoff. If you spend by basically reducing revenues because you cut taxes on people who don't need the money, they won't be consuming more, or investing more, so the macro payoff is more limited," he said.
US Treasuries were yielding around 4.45 percent, down 3.2 basis points on the day.
Data on US consumer inflation for May due Wednesday could show the impact on tariffs on goods prices.
The producer price index (PPI) report will be released a day later.
"May's US CPI and PPI data will be scrutinised for signs of lingering inflationary pressures," said Convera's FX and macro strategist Kevin Ford.
"If core CPI remains elevated, expectations for rate cuts could be pushed beyond the June 18 FOMC meeting."
Traders expect the Fed to leave rates unchanged at its policy meeting next week. Just 44 bps worth of easing have been priced in by December.
In commodity markets, oil prices rose on the back of optimism that Tuesday's US-China talks could ease trade tensions and improve demand for energy. Spot gold rose 0.15 percent to $3,332 an ounce.
