Global stock index hits record high as U.S.-China trade deal optimism climbs

By Sinéad Carew

NEW YORK (Reuters) - MSCI's global stock index hit a record high on Thursday and the U.S. dollar index gained after President Donald Trump said the United States was "very close" to reaching a trade deal with China.

The comment, days before new U.S. tariffs on Chinese imports were to be imposed, also sent U.S. Treasury yields higher. Wall Street's main indexes had pared gains by late afternoon trading after initially spiking higher after the comments.

Sterling fell from an eight-month high versus the dollar and deepened losses as the day wore on with voting underway in a U.K. election, which could decide whether Britain exits the European Union or holds a referendum that could reverse the country's Brexit vote.

Earlier, European Central Bank head Christine Lagarde had promised a strategic review of the bank's workings and left its easy money stance unchanged, as expected.

On Wednesday, the U.S. Federal Reserve held interest rates steady and signaled borrowing costs will not change anytime soon, with moderate economic growth and historically low unemployment expected to persist through the 2020 presidential election.

But U.S. investors appeared to be laser focused on U.S.-China trade relations, which has recently been a key reason for volatility. The market fell sharply last week when Trump said a deal may not come until after the 2020 presidential election.

"Having sent up that test balloon and failed, the administration is saying the Dec. 15 deadline needs to be extended," said Art Hogan, chief market strategist at National Securities in New York.

"The market is saying we can remain constructive as long as you are working towards a deal. Escalation means bad things for both the market and the economy.”

Trump was due to discuss the trade situation with his advisers at 1430 EST (1930 GMT), Reuters reported citing a source familiar with the matter.

The Dow Jones Industrial Average (DJI) rose 147.57 points, or 0.53%, to 28,058.87, the S&P 500 (SPX) gained 16.21 points, or 0.52%, to 3,157.84 and the Nasdaq Composite (IXIC) added 27.69 points, or 0.32%, to 8,681.74.

The pan-European STOXX 600 index (STOXX) rose 0.33% and MSCI's gauge of stocks across the globe (MIWD00000PUS) gained 0.49% surpassing the previous record reached in January 2018.

In currencies, the dollar index, which measures the greenback against a group of major currencies, (DXY) rose 0.42%, with the euro (EUR=) down 0.2% to $1.1106. The Japanese yen weakened 0.67% versus the greenback at 109.30 per dollar.

As markets waited for results of the UK election, sterling was last trading at $1.3073, down 0.91% on the day.

If U.K. Conservatives, led by Boris Johnson, gain a majority, that would allow the stalled Brexit deal to be passed. But the latest polls have shown his lead shrinking.

Exit polls for Britain's election will begin around 2200 GMT, after voting closes. Whether there will be a clear winner or another hung parliament is likely to emerge between 0400 GMT and 0600 GMT.

U.S. Treasury yields spiked with the long end hitting four-week highs after the trade deal comments.

Benchmark 10-year notes (US10YT=RR) last fell 29/32 in price to yield 1.8904%, from 1.79% late on Wednesday.

The 30-year bond (US30YT=RR) last fell 71/32 in price to yield 2.3204%, from 2.22% late on Wednesday.

Oil prices were also boosted by trade optimism. (OR)

U.S. crude rose 1% to $59.35 per barrel and Brent was last at $64.38, up 1.04% on the day.

In commodities, spot gold dropped 0.5% to $1,468.00 an ounce.

Here is a graphic plotting Sterling's move versus election odds:

https://fingfx.thomsonreuters.com/gfx/mkt/12/9814/9726/BETFAIR.png