* Pound surges as Tories score solid majority
* European shares 1.5% higher, pound can't hold back FTSE
* World shares at record high on Sino-U.S. deal reports
* Markets scale back bets on rate cuts around the world
* World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Marc Jones
LONDON, Dec 13 (Reuters) - Stock markets and sterling gained
on Friday as U.S.-China trade hopes and an election win for
Britain's Brexit-backing Conservative Party cleared two of the
clouds on the global investment horizon.
The relief undercut safe-haven sovereign bonds and the
Japanese yen and led markets to scale back expectations of more
interest rates cuts around the world.
"Global investors have been given two of the biggest gifts
on their Christmas list and should be appreciative for a while
at least," said Sean Callow, a senior forex analyst at Westpac.
"Global equity indices such as MSCI World should set more record
highs and sterling could push above $1.36."
The pound had climbed overnight to its highest since
mid-2018 when exit polls and then a burst of UK election results
ended any chance of a win by the left-wing Labour opposition,
which had been a worry for investors.
Prime Minster Boris Johnson won a commanding majority in
Britain's Parliament, giving him the power to deliver Brexit,
though trade talks with the European Union are set to drag on
for months, if not years. The pound had started to see some profit-taking but was
still up over 2.4% in 24 hours at just under $1.34 GBP=D3
having also reached its highest against the euro since mid-2016.
Shares in British companies with high UK revenues surged as
soon as they opened. The mid-cap stocks index FTSE 250 .FTMC ,
which is home to many of them, shot to a record high. The
country's biggest banks rose 5% to 15%.
"Over the next 1-2 months I think it is about long-term
buyers of sterling returning to the market that might have been
on the sidelines up until this point," explained NatWest Markets
head of G10 FX strategy Paul Robson, saying heavyweight
sovereign wealth funds could start buying into UK equities.
Trade euphoria had lifted Wall Street to record highs.
Reuters reported the United States had proposed reducing some
tariffs on Chinese goods and delaying a tranche of tariffs as
part of phase one of a deal. China would need to agree to make $50 billion in
agricultural purchases in 2020, that person and another U.S.
source familiar with the talks said. Beijing had remained tight-
lipped, however.
"If the U.S. cuts the current tariffs to some extent as
reported, that is not something markets have priced in, so we
could see a further leg up," said Norihiro Fujito, chief
investment strategist at Mitsubishi UFJ Morgan Stanley
Securities in Tokyo.
LESS NEED FOR MORE CUTS?
E-Mini futures for the S&P 500 ESc1 rose 0.3% to another
peak. On Thursday, the Dow .DJI closed up 0.8%, the S&P 500
.SPX gained 0.86% and the Nasdaq .IXIC rose 0.73%. .N
Europe's pan-regional STOXX 600 .STOXX was 1.5% higher,
helped by the FTSE's 1.7% gain. That seemed puny compared with
the 4% leap in the domestic-focused FTSE 250 .FTMC . .EU
"This morning we have gently added to our UK domestic
stocks," said James Clunie at asset manager Jupiter's Absolute
Return Fund.
In Asia, Japan's Nikkei .N225 climbed 2.5% to a 14-month
top and Shanghai blue chips .CSI300 advanced 2%. .T .SS
MSCI's broadest index of world shares .MIWD00000PUS jumped
0.7% to set its second straight all-time high.
That was bad news for bonds, and yields on U.S. 10-year
Treasuries US10YT=RR shot up as far as 1.91%, a rise of 12
basis points in just two sessions. Germany's 10-year government
bond yield touched a six-month high at -0.247%. GVD/EUR
Interest rate futures 0#FF: slipped as investors priced in
less chance of a rate cut by the Federal Reserve next year - a
shift seen across a range of developed nations, including the
Other safe harbours also took a beating, with the yen
sliding across the board. The dollar gained to 109.65 yen JPY=
having risen 0.7% overnight.
The U.S. currency fared less well elsewhere, slipping 0.5%
to 96.792 .DXY against a basket of currencies, as the pound
and the euro both benefited from the UK election result.
The dollar also fell to an 18-week low against China's yuan,
since any trade truce would be seen as a boon for the
export-heavy Chinese economy. It recovered to 6.9673 yuan CNH=
in Europe, having shed 1.2% overnight.
Spot gold was higher at $1,470 per ounce XAU= .
Oil prices rallied on hopes a trade deal would support
global growth and thus demand O/R . U.S. crude CLc1 added 31
cents to $59.49 a barrel. Brent crude LCOc1 rose 42 cents to
$64.62.
Asia stock markets https://tmsnrt.rs/2zpUAr4
Asia-Pacific valuations https://tmsnrt.rs/2Dr2BQA
Gains for UK assets after Brexit election interactive https://tmsnrt.rs/34i1Kdh
Gains for UK assets after Brexit election png https://tmsnrt.rs/34nttt6
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