NEW YORK (Reuters) – The dollar slid to a six-month low on Tuesday as progress on U.S.-China trade tensions led investors to higher-risk assets, while a year-end rally that pushed global equity markets to record highs petered out on the last trading day of 2019.
The year was remarkable for investors, as many equity indices, long-term bonds, oil and gold posted double-digit gains.
U.S. President Donald Trump said the Phase 1 trade pact with China would be signed on Jan. 15 at the White House, though confusion remains about details of the agreement.
Stocks for a second day in a row failed to rise on the news as they have for most of December, with hopes of an imminent deal a key factor for lifting a gauge of global equities to its best year since 2009, up almost 24%.
MSCI’s all-country world index .MIWD00000PUS of equity performance in 49 nations fell 0.18 points or 0.03 percent, to 564.2. The index is just under 4 percentage points from an all-time high set on Friday, when U.S. stocks also posted record peaks.
The breakthrough in U.S.-China trade talks and a British election earlier in December pointing to a smoother exit from the European Union have boosted investor sentiment, but the outlook for equities next year is not as buoyant, said David Kelly, chief global strategist at JPMorgan Asset Management.
“This is a year in which everybody will celebrate,” he said.
Going forward, however, it will be hard to achieve similar gains, with U.S. equities likely to advance by mid-single digits annually for several years, Kelly said. International markets, especially emerging markets, are poised to do better, he said.
“The U.S. stock market rally could continue but at some stage there’s going to be a significant correction, and the more it goes up the more it’s going to correct,” he said.
In shortened trading sessions ahead of New Year’s Eve celebrations, the pan-European STOXX 600 index closed down 0.08%.
On Wall Street, the Dow Jones Industrial Average .DJI fell 29.73 points, or 0.1 percent, to 28,432.41 and the S&P 500 .SPX lost 0.77 points, or 0.02 percent, to 3,220.52The Nasdaq Composite .IXIC added 11.73 points, or 0.13 percent, to 8,957.72.
Emerging market stocks lost 0.29%.
Bourses in Asia diverged. China mainland stocks .CSI300 .SSEC gained 0.4% after data showed manufacturing activity in the world’s second-largest economy expanded for a second straight month in December.
China’s Purchasing Managers’ Index (PMI) showing economic trends in the manufacturing and service sectors, was unchanged at 50.2 in December from November, but still remained above the 50-point mark that separates growth from contraction.
In Hong Kong, stocks .HSI fell 0.5% as protesters geared up for pro-democracy rallies on New Year’s Eve.
Markets in Japan and South Korea were closed for a holiday.
The dollar’s slide came close to wiping out the year’s gains, as the pound and a clutch of trade-sensitive currencies rallied on improving U.S.-China trade relations and the outlook for global growth.
The dollar also fell, as one of the biggest bets in the FX market for 2020 is shorting the U.S. currency.
“We could be right at a turning point where global growth re-accelerates relative to U.S. growth, and that could mean a weaker dollar over time,” Kelly said.
The dollar was strong for much of 2019 thanks to the relative outperformance of the U.S. economy and investors’ preference for a safe-haven currency amid the trade dispute. But the dollar’s gains for the year shriveled in December. Investors bought up currencies linked to global trade, sending the Australian dollar, Chinese yuan and Scandinavian crowns to multi-month or multi-week highs against the greenback.
The dollar index .DXY, which tracks the greenback against a basket of six currencies, fell 0.251 point or 0.26 percent,, or 0.27 percent, to 96.489 and the euro EUR= was last up 0.18 percent, at $1.1217.
The weak dollar helped lift spot gold XAU= to its highest since Sept. 25 at $1,525.20 an ounce. The metal was set to post its biggest yearly gain since 2010, rising more than 18%.
U.S. gold futures GCv1 settled up 0.3% at $1,523.10.
The benchmark U.S. Treasury 10-year note US10YT=RR fell 7/32 in price to yield 1.9192%.
Longer-dated Treasuries were on track to post their best return since 2014, after concerns about the slowing U.S. economy prompted the Federal Reserve to cut interest rates three times this year. The move was a major reason for Wall Street’s gains.
Thirty-year bonds returned 17.15% this year through Monday .MERGA30, according to Bank of America Merrill Lynch, while 10-year notes .MERGA10 have returned 9.03%.
Final data will not be updated until late on Tuesday.
Oil fell but was still on track for monthly and annual gains, supported by a thaw in the prolonged U.S.-China trade row and Middle East unrest.
Brent crude LCOc1 settled down 67 cents at $66.00 a barrel, while U.S. West Texas Intermediate (WTI) crude CLc1 slid 62 cents to settle at $61.06 a barrel.
Brent has gained about 23% in 2019 and WTI has risen 34%, their best yearly gains in three years.
(GRAPHIC: Asian shares over the past decade – here)
Reporting by Herbert Lash and Karin Strohecker; additional reporting by Andrew Galbraith in Shanghai; Editing by Nick Zieminski and Dan Grebler
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