Geopolitics remained in focus with reports that talks on the Russian-Ukraine conflict will begin in Saudi Arabia this week, though the participants are not entirely clear.
The imminent threat of reciprocal U.S. tariffs has receded until April, but the risk that they might include levies based on value added taxes in other countries was a major worry.
“The prospect, however misguided, of the U.S. levying an additional 20% tariff on all EU imports, on top of whatever else it deems appropriate, and to varying degrees on all other countries who have VAT regimes is a truly terrifying prospect in terms of the implications for global growth,” said Ray Attrill, head of FX research at National Australia Bank. The Financial Times reported on Sunday that the European Commission would explore tough import limits on certain foods made to different standards in an effort to protect its farmers, echoing President Donald Trump’s reciprocal trade policy.
For now, investors were just relieved that major tariffs had not already been introduced and MSCI’s broadest index of Asia-Pacific shares outside Japan edged 0.1% higher.
Japan’s Nikkei was little changed as investors eyed a bounce in the yen, while South Korea added 0.2%. The recent star in Asia has been Hong Kong’s market which jumped 7% last week on optimism the Chinese firms could deliver low cost versions of AI to compete with the West. The rush was led by a 24% jump in Alibaba on news it would partner with Apple to support iPhones’ artificial intelligence services offering in China.
Alibaba reports earnings on Thursday and options imply the share could move 7.5% in either direction on the results.
The pan-European STOXX 600 index has also been attracting global funds having climbed for eight straight weeks to be up 8% since the turn of the year.
DOLLAR NOT SO EXCEPTIONAL
A holiday in U.S. markets made for a quiet start, leaving S&P 500 futures and Nasdaq futures near flat.
Wall Street was briefly fazed by the retail sales report on Friday but the S&P 500 still ended the week up 1.5%, while the Nasdaq gained 2.6%.
Treasuries rallied on the soft sales numbers as markets swung back toward pricing in two Federal Reserve rate cuts this year rather than just one.
Minutes of the Fed’s last meeting are due on Wednesday and should offer some detail about the outlook for further easing, while there are at least six Fed officials due to speak.
Yields on 10-year Treasuries were holding at 4.478%, well off a top of 4.660% hit in the middle of last week.
The drop in yields undermined the dollar and left the index at 106.84 after a loss of 1.2% last week. The euro was steady at $1.0485, having rallied 1.6% last week, and aiming to test resistance at $1.0533.
The dollar eased 0.2% to 152.02 yen after Japan reported surprisingly strong economic growth of an annualised 2.8% for the fourth quarter.
The pound was firm at $1.2577 ahead of a raft of UK data including employment, wages and consumer prices, which will impact market wagers on the timing of the next rate cut.
Bank of England Governor Andrew Bailey is due to speak this week and will no doubt be questioned on the outlook.
Central banks in Australia and New Zealand hold policy meetings this week and are both expected to cut interest rates, the former by 25 basis points and the latter by twice that.
In commodity markets, gold was not far from record highs at $2,879 an ounce having rallied for seven weeks straight.
Oil has had a tougher time as the prospect of peace talks on Ukraine could lead to greater supply should sanctions on Russian output be relaxed.
Brent slipped another 36 cents to $74.38 a barrel, while U.S. crude fell 42 cents to $70.32 per barrel.
