Small steps from stocks after rally, giant leap for yuan

LONDON: Soothing words from the world's top central banks helped stocks consolidate a strong start to 2019 on Friday, while China's yuan capped its best week since it shed its dollar peg in 2005.

Stock markets were lifted by more promises of patience from the Federal Reserve, the ECB mulling more cheap money and trade talks between Washington and Beijing moving to higher levels.

Asia crawled to a 5-week high and Wall Street futures were down a touch but European stocks clung to a fourth day of gains and their longest winning streak since September.

The Fed's dovish stance also pushed down the dollar and nudged Treasury yields lower after five days of gains, cheering emerging markets and restoring confidence after a brutal end to 2018.

Sterling also sparked into life after a report that top government members expect a Brexit delay.

"Equities are having a good run after a pretty horrible end to last year. It is the changing wording of the Fed, it seems to be making more and more room for an eventual pause (in the rate hike cycle)," Rabobank quantitative analyst Bas Van Geffen said.

The index of Europe's leading 300 shares was up 0.1 percent at 1374 points, having hit its highest in almost a month. But after a 3 percent jump for world stocks this week traders were beginning to book some profit.

Germany's DAX and France's CAC both slipped into the red as U.S. futures soured, while the pound's jump dragged Britain's FTSE lower.

Wall Street had enjoyed a strong performance on Thursday. The S&P 500 is now up more than 10 percent from its Dec. 26 low, and the 0.2 percent dip in futures will be barely a scratch if it materialises.

At the Economic Club of Washington, Fed chief Jerome Powell reiterated the U.S. central bank would be patient about hiking interest rates against a backdrop of the longest partial U.S. government shutdown in history.

"The word 'patient' is used often when the Fed's policy direction is still tightening but its next rate hike can wait for a considerable time. So risk assets now enjoy support from what we can call Powell put," said Tomoaki Shishido, economist at Nomura Securities.

"Similarly, Trump also softened his stance on China after sharp falls in stock prices. He has offered an olive branch to China and there's no reason China would not want to accept it," he added.

U.S. and Chinese officials are working on arrangements for higher-level trade talks after mid-level officials this week discussed structural change in China to address issues such as IP theft, forced technology transfers and other non-tariff barriers.

U.S. Treasury Secretary Steven Mnuchin said on Thursday that Chinese Vice Premier Liu He will "most likely" visit Washington later in January for further meetings.

YUAN GIANT LEAP

In the foreign exchange markets, the dollar was on course for its fourth straight weekly fall against other top world currencies having also hit a three-month low the previous day.

The flip side was that the Japanese yen was a shade higher again at 108.29 per dollar and the euro was up at $1.1530  on course for its best week since August.

China's yuan has been the seismic mover. Against the backdrop of sensitive trade negotiations, the it has risen 1.8 percent this week in its biggest gain since July 2005 when Beijing abandoned the yuan's peg to the dollar.

Yuan traders had started offloading dollars in their proprietary accounts on Thursday following the wrap-up of three-day U.S.-China trade talks in Beijing. Markets treated absence of any bad news from those negotiations as good news.

"Some corporate clients were joining to sell their dollars," said a trader at a foreign bank in Shanghai.

Bond markets have been turning too. U.S. Treasury debt prices erased early gains after a soft 30-year bond auction and in reaction to Powell's comments on the Fed "substantially" reducing the size of its balance sheet.

The 10-year U.S. Treasuries yield last stood at 2.716 percent.

Crude prices held near four-week highs, lifted by optimism on U.S.-China talks and as OPEC-led crude output cuts started to tighten supply.

In early European trade West Texas Intermediate crude futures were up 0.5 percent at $52.84 per barrel, the highest level in almost a month. Brent crude futures traded at $62.18 per barrel, up 0.8 percent on the day.

"Sentiment is greatly improved, and trade talk optimism has helped boost risk appetite," Jasper Lawler, head of research at London Capital Group, said.