U.S.-China Trade Hopes Lift Shares, Turkey Test Awaits

World markets calmed after signs of movement in the U.S.-China trade stand-off and ahead of major central bank meetings on Thursday, including emerging market trouble spot Turkey.

News that President Donald Trump’s administration had reached out to Beijing for a new round of trade talks had helped Asia rally after several torrid weeks that has included the region’s longest losing streak since 2000.

Shanghai, Tokyo, Jakarta stocks all gained around 1 percent and Hong Kong’s Hang Seng finished up 1.8 percent, while China’s yuan also edged higher in the currency markets.

Washington’s invitation follows threats from Trump to impose tariffs on practically all imports from China in the absence of key concessions from Beijing.

Europe moved higher too, with 0.2-0.6 percent gains for German, French, Italian and Spanish shares offsetting a weaker FTSE in London which was hit by weaker oil and tobacco stocks.

For MSCI’s All World stocks index, which tracks 47 countries , it looked set to be a fourth straight day of gains.

“There have been a lot of obvious headwinds to risk appetite over the summer,” said State Street Global Markets’ head of global macro strategy Michael Metcalfe.

“I just get the sense this week we are beginning to see some light through the clouds.”

In the currency market, the dollar began to nudge higher again having been dampened by Wednesday’s soft U.S. wholesale price data, which had undermined the case for a faster pace of policy tightening by the Federal Reserve.

U.S. producer prices unexpectedly fell in August, recording their first drop in 1½ years and denting talk of accelerating inflation following Friday’s strong wage data.

The euro hovered around $1.1624, having gained around 0.6 percent so far this week. The yen weakened 0.2 percent to 111.47 per dollar on the soothing trade noises.

Sterling held near a six-week high of $1.3087 as Brexit-supporting lawmakers in British Prime Minister Theresa May’s party publicly pledged support for her to stay in power.

The European Central Bank (ECB) and the Bank of England (BOE) are holding policy meetings on Thursday, but both are widely expected to leave interest rates unchanged, though the ECB could confirm when exactly it will end its stimulus program.

A policy meeting by the Turkish central bank is expected to raise its interest rates sharply to shore up its battered lira.

The lira has lost more than 40 percent of its value against the dollar this year, hit by worries over President Tayyip Erdogan’s grip on monetary policy and by a diplomatic spat between Ankara and Washington.

The lira crisis has spread to some other emerging market countries with weak economic fundamentals such as sizable current account deficits.

“In theory, what the Turkish central bank does shouldn’t impact other markets. However, if it is an example of an EM central bank reaffirming its credibility, then you could get some positive contagion from it,” State Street’s Metcalfe said.

The lira traded at 6.3700 per dollar, up about 0.7 percent on the week and well off its record low of 7.240 reached one month ago.

Among commodities, oil prices fell, reversing some of the strong gains from the previous session, as economic concerns raised doubts about fuel demand growth.

Brent futures hit $80 per barrel on Wednesday but eased in early London trading to $79.00, down 0.8 percent on the day.

Most euro zone government bond yields were little changed meanwhile, with the market largely sidelined ahead of the European Central Bank meeting.

Italy’s debt market was the outlier, with yields there rising ahead of a sale of up to 7.75 billion euros of bonds.

“Our sense is that we will get a dovish press conference from Draghi,” said Dean Turner, an economist at UBS Wealth Management in London.