Global stocks surges amid positive sign from U.S.-China trade negotiations

Global stocks surged on Monday, extending gains from their best quarter since 2010, as strong Chinese factory activity data and signs of progress in U.S.-China trade negotiations gave investors reason to cheer. European stocks posted their best daily gains since mid-February, with the pan-European STOXX 600 index up 0.8 per cent. Germany's trade-sensitive DAX outperformed with a 1 per cent rise, helped by gains in automaker stocks.

MSCI's All-Country World Index, which tracks shares in 47 countries, was up 0.4 per cent on the day. It had just posted its best quarter since 2010. S&P 500 futures were up about 0.7 per cent, indicating a higher open on Wall Street. "Investors' sentiment seems to be tilting to the side of optimism at the beginning of the second quarter, following a robust manufacturing report from China," said Konstantinos Anthis, head of research at ADSS.

China's official purchasing managers' index (PMI) released on Sunday showed factory activity unexpectedly grew for the first time in four months in March. A private business survey, the Caixin/Markit PMI, released on Monday, also showed manufacturing. "This news helps ease market participants' worries over the odds of an upcoming recession on a global scale, even though there are plenty of signs suggesting caution," Anthis said.

Recent signals from bond markets have alerted investors to the possibility of a slowdown in the global economy. Yields on short-dated government bonds in the United States had fallen below those of longer-dated bonds - a phenomenon known as yield curve inversion, which has preceded every major recession. "We don't see recession in 2019 or early 2020 — we believe the Federal Reserve unambiguously ending three years of tightening, and other central banks' dovish tilts, have extended the cycle," wrote Bob Michele, CIO and head of global fixed income at J.P. Morgan Asset Management in a note to clients.

"We left the probability of recession unchanged at 10 per cent, although even a minor policy error could raise that." The 3-month-to-10-year yield spread has since pulled back from negative territory and stood around 3 basis points.

TRADE OPTIMISM Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan added 1 per cent and the Shanghai Composite Index rallied 2.6 per cent.

Australian stocks climbed 0.6 per cent, South Korea's KOSPI gained 1.3 per cent and Japan's Nikkei advanced 1.4 per cent. "The rebound (in the Chinese data) likely reflects both the resumption of production after the Chinese New Year break and renewed stimulus and policy easing," UBS strategists wrote in a note to clients.

"We expect China to continue easing policy, with signs of economic stabilization backing our overweight position on offshore Chinese equities in our Asia portfolios." Stocks in Asia also took their cues from Wall Street, with the S&P 500 posting its best quarterly gain in a decade on Friday amid trade optimism.

The United States and China said they made progress in trade talks that concluded on Friday in Beijing. Washington called the negotiations "candid and constructive". In currencies, the dollar fell 0.18 per cent against a basket of currencies to 97.112.

Sterling was over half a per cent higher to the dollar at $1.3104 on Monday as investors prepared for British parliament to vote on a series of Brexit options. Some hoped the current uncertainty will end in a softer Brexit than Prime Minister Theresa May's defeated withdrawal agreement. The Australian dollar advanced as much as 0.45 per cent to $0.7127, also benefiting from the China data. The Aussie is sensitive to shifts in the economic outlook for China, the country's main trading partner. It last traded 0.25 per cent higher at $0.7113.

The euro rose 0.1 per cent to $1.1230. Oil rose, building on its largest first-quarter gains in nearly a decade, as tight supply and positive signs for the global economy supported prices.

U.S. West Texas Intermediate futures gained 0.95 per cent to $60.71 per barrel. Brent was 1.3 per cent higher at $68.47 per barrel.