* Europe, Nikkei, Shanghai reach two-month highs
* Wall Street eyeing return to record highs
* Treasury bonds off as market scales back bets on Fed
easing
* PMI factory surveys disappoint, from China to Japan to
euro zone
* Oil prices jump 2.8% as OPEC looks set to extend supply
cuts
* Chipmakers rally jump as Trump cools heat on Huawei
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Marc Jones
LONDON, July 1 (Reuters) - Stocks rallied and bonds
retreated on Monday as the United States and China agreed to
restart trade talks, leading investors to cut back wagers on
aggressive policy easing by the major central banks.
The dollar gained against the safe-haven yen as Treasury
yields rose and futures reined in bets for a half-point rate cut
from the U.S. Federal Reserve this month.
"It (Trump-Xi G20 meeting) played out as well as possible,"
said Hans Peterson, SEB Investment Management's global head of
asset allocation. "So it gives us time to digest and get a bit
better activity in the global economy."
The United States and China agreed on Saturday to resume
trade negotiations after President Donald Trump offered
concessions to his Chinese counterpart Xi Jinping when the two
met at the sidelines of the G20 summit in Japan.
Those included no new tariffs and an easing of restrictions
on tech company Huawei HWT.UL . China agreed to make
unspecified new purchases of U.S. farm products and return to
the negotiating table. The initial reaction was one of relief that at least new
tariffs were avoided.
Europe's STOXX 600 climbed 1% and Japan's Nikkei .N225
2.1% to hit two-month highs. MSCI's broadest global index
.MIWD00000PUS added 0.3%, having just missed its best first
half to a year. Chinese blue chips .CSI300 jumped 2.6% to their highest
since late April and Germany's export-heavy DAX .GDAXI gained
1.5% to its highest since August. The Huawei hiatus and M&A
activity pushed Europe's tech sector .SX8P to a one-year peak.
.EU
Wall Street was looking on course to return to record highs
with S&P 500 ESc1 and Nasdaq NQc1 futures up 1.1% and
1.7%. .N In the bond market, though, Treasury futures TYc1
dipped as yields on 10-year notes US10YT=RR edged up to 2.02%.
[GVD/EUR
Fed funds 0#FF: dropped over five ticks as the market
scaled back the probability of a half-point rate cut this month
to around 15%, from nearer 50% a week ago. FEDWATCH
Central bank umbrella group, the Bank for International
Settlements, had urged top central banks at the weekend to
preserve their ammunition rather than deplete it chasing higher
growth. "I think the Fed expectations in the market are very
aggressive. Possibly a bit too aggressive," SEB's Peterson said.
DAMAGE DONE
No deadline was set for a trade deal at the weekend G20
summit, however, and much damage has already been done. Two
surveys of Chinese manufacturing showed activity contracting.
The official Purchasing Managers' Index (PMI) held at 49.4
in June, just missing forecasts, while the Caixin/Markit PMI
dropped to 49.4, the worst reading since January.
Surveys from Japan and South Korea showed similar slowdowns.
So did the reading for the euro zone, which contracted for a
fifth month running and at a faster pace than previously
expected. "Euro zone manufacturing remained stuck firmly in a steep
downturn in June, continuing to contract at one of the steepest
rates seen for over six years," said Chris Williamson, chief
business economist at IHS Markit.
There were some unusual issues, too. South Korea .KS11
lagged, in part as Japan tightened restrictions on exports of
high-tech materials in response to a South Korean ruling on
war-time forced labour. European Union leaders were struggling to agree on who will
take over the EU's top jobs Swiss stocks seemed
unfazed that they had been barred from EU exchanges amid a row
between Brussels and Bern. The post-G20 cheer dominated, though. In currency markets,
safe havens like the yen and Swiss franc gave up some recent
gains. The dollar rose 0.4% on the yen to 108.26 JPY= and 0.7%
on the franc to 0.9830 CHF= . /FRX
The dollar added 0.4% on a basket of currencies to 96.531
.DXY . The euro eased to $1.1350 EUR= . The dollar went the
other way on the Chinese yuan, dipping 0.4% to 6.8403 CNY= .
The dollar's gains hurt gold, which fell 1.5% to $1,388 per
ounce XAU=
Industrial metals did better. Copper scored a six-week high
and oil prices rose as OPEC and its allies looked set to extend
supply cuts at least until the end of 2019. Iraq joined top
producers Saudi Arabia and Russia in endorsing the policy.
O/R
Brent crude LCOc1 futures rose $1.55, or 2.4%, to $66.31 a
barrel. U.S. crude CLc1 gained $1.35, or 2.3%, to $59.82.
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Global markets in H1 https://tmsnrt.rs/2FEK8yw
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