Global shares: US flat, Europe up after trade news, UK vote; Asia rallies

US markets

US equities retreated from early gains to end mostly flat Friday as markets looked for more specifics on the US-China trade pact heralded by US and Chinese officials. The Dow industrials and the S&P 500 were unchanged, and the NASDAQ was up 0.2 percent.

The fact that the deal has not been signed, and many details remain unclear to markets left traders uncertain and skeptical despite President Trump and Chinese officials saying the two sides had agreed to a phase-one deal calling for the US to scale back tariffs, largely in exchange for Chinese purchases of US goods.

President Trump tweeted early Friday the US and China had agreed on a phase-one trade deal including "many structural changes and massive purchases" of US farm products. The US Trade Representative said the agreement covers intellectual property, technology transfer, agriculture, financial services, currency, and foreign exchange, but it did not offer specifics. US tariffs scheduled to take effect Dec. 15 will not be implemented, but a 25 percent tariff will remain in effect on $250 billion of Chinese imported goods, USTR said, and tariffs on another batch of $120 billion in Chinese imports will be cut in half to 7.5 percent. Negotiations on a phase-two deal are to start immediately.

Weak US retail sales data added to the caution. US markets did not respond strongly to the big victory for UK Prime Minister Boris Johnson that bolstered European markets.

Among sectors, utilities and technology were the day’s leaders, with energy and materials lagging. Among companies in focus, Adobe, the software company, rose 3.6 percent on an earnings beat. On the downside, Broadcom was off 3.8 percent on disappointment over its revenue forecast. Software leader Oracle was off 3.5 percent on negative reaction to its operating margin results.

In US economic news, retail sales rose only 0.2 percent in November to miss Econoday's low estimate. In fact all the major readings came in just under the low estimates with ex-auto sales up 0.1 percent, ex-autos ex-gas unchanged, and the control group up only 0.1 percent.

These data reflect observations at 4:00 PM US ET:  Dated Brent spot crude oil rose 42 cents to US$64.90, while gold rose US$6.30 to US$1480.50. The US dollar was mixed against major currencies.  The US Treasury 30-year bond yield fell 8 basis points to 2.25 percent while the 10-year note yield fell 7 basis points to 1.82 percent.

European markets

Major European equities indexes gained Friday on news of a phase-one US-China trade deal, and after a sweeping victory for the UK Conservatives. The Europe-wide STOXX 600 rose 1.1 percent, the German DAX gained 0.5 percent, the French CAC rose 0.6 percent, and the UK FTSE-100 rallied 1.1 percent. 

Risk assets improved as markets saw progress in removing worries over trade and Brexit, but reaction on the trade front was muted as the deal remains unsigned, and on lack of specifics about the agreement. UK domestic-oriented stocks outperformed on the election results, which were seen as assuring Brexit will proceed in early 2020 on Prime Minister Boris Johnson’s terms. The election outcome boosted sterling, which hurt export-oriented sectors, but the news bolstered outlook for the domestic economy.

Among sectors, travel & leisure, retail, and media outperformed, while real estate, health care, and oil & gas lagged. Among companies in the news, Hollywood Bowl, the UK entertainment company, led gainers, up 7.2 percent, on a positive earnings surprise. On the downside, Henkel, the German consumer goods company, fell 3.3 percent on a profits warning.

Asia Pacific markets

Major Asian markets advanced Friday, in some cases sharply, with several also recording strong gains on the week. Investors reacted positively to reports late Thursday that the US and China have agreed in principle to “phase one” of a trade deal and that scheduled tariff increases will not go ahead. Chinese officials, however, provided no indication during the Asian trading session that an agreement has been reached. Sentiment was also boosted by the UK election results and the likelihood that Brexit uncertainty will soon be resolved.

Hong Kong’s Hang Seng index was among the strongest performers in the region on the day, up 2.6 percent, and outperformed on the week, up 4.5 percent. Japan’s Nikkei and Topix indices also rallied Friday, up 2.6 percent and 1.6 percent respectively on the day, extending gains on the week to 2.9 percent and 1.6 percent respectively. After little change earlier in the week, the Shanghai Composite index closed Friday up 1.8 percent on the day and 1.9 percent on the week, while Australia’s All Ordinaries index underperformed with an increase of just 0.5 percent on the day and on the week.

Japan's Tankan survey showed business sentiment has weakened in both the manufacturing sector and non-manufacturing sector in recent months. The business conditions index for large manufacturers fell from 5 in the three months to September to zero in the three months to December, while the equivalent index for large non-manufacturing firms fell from 21 to 20. Officials attributed some of this weakness to the impact of a major typhoon in October and the recent increase in consumption tax rates. The survey also showed firms across both sectors expect capital expenditures to strengthen in the fiscal year ending March 2020, with firms in the non-manufacturing sector revising up their estimates significantly.