Wall Street rallies as credit growth surge overshadows global trade fears

Wall Street rallied as confidence in the US economy overshadowed concerns about a deteriorating relationship with its major trading partners.

Exporters are expected to take the brunt of the US-China tariffs war while investors took comfort from last Friday's strong jobs report and looked forward to a solid second quarter earning season.

Meanwhile, the UK plunged into a new round of political turmoil over the Brexit negotiations.

Prime Minister Theresa May faces a likely challenge to her leadership after the resignations of two hardline Brexiters, Foreign Minister Boris Johnson and Brexit Secretary David Davis.

Both disagree with the cabinet’s agreement on Friday to a “soft” exit from the EU.

Daiwa Capital Markets’ European research head Chris Scicluna says the resignations increase the chances of a no-deal Brexit or Article 50 extension and/or a new general election,

“Even if Mrs May continues to hold on to her position as prime minister, the noises from Mr Davis and key Brexiter backbenchers strongly suggest that she would now fail to be able to force through Parliament any final withdrawal agreement — which, even if it were based on Friday’s cabinet agreement, would still likely require further concessions to be made to Brussels,” Mr Scicluna says.

The UK market was unfazed, with the FTSE rising 1.0% on the news, fuelled by a drop in the pound that will boost earnings for the export-heavy index.

Dow recovers gain for year
On Wall Street, the Dow Jones Industrial Average rose 320.22 points, or 1.3%, to 24,776.70, which puts it above its close at the end of 2017 at 24,719.22, a gain of 0.2% so far this year.

The Dow rose above its short-term 50-day moving average for the first time in three weeks. Meanwhile, the S&P 500 was up 0.9% at 2784.17 and the Nasdaq Composite also climbed 0.9% to 7756.20.

Financial stocks lead the market higher, with JPMorgan Chase rising 3.1%, Bank of America 3.6%. Citigroup 2.7% and Goldman Sachs Group 2.8%.

“Given the rhetoric over the past few weeks, it seems like the probability of a trade war has increased. However, in the short term, I still think there’s a relatively low probability that one will actually occur," Wells Fargo Investment Institute senior global equity strategist Scott Wren says.

"In the meantime, US economic data has been good and the Street knows this will be a good year for earnings.”

Twitter shares fell more than 5% after a Washington Post report that suggested an effort to clear out some fake accounts could affect its user numbers.

However, they rebounded once chief financial officer Ned Segal clarified that most of the accounts were not active in the previous 30 days and thus would not be counted in Twitter's preferred "monthly active user" metric.

Twitter stock has increased 84.3% this year compared with a 3.2% gain in the S&P 500.

Consumer borrowing increases
A strong pickup in consumer borrowing during May provided further signs of strength in the US economy. Total consumer credit rose 7.6%, or $US24.6 billion, to a seasonally adjusted $US3.9 trillion. That’s the fastest pace of credit growth since November.

Economists have been expecting a $12.4b gain. Credit expanded a revised $US10.3b in April, up from the previous estimate of $9.3b.

US government-bond prices fell as investors braced for three scheduled auctions of Treasury notes and bonds totalling $US69b this week. The yield on the 10-year Treasury note rose to 2.853% from 2.831% on Friday.

Brent crude rose 1.2% to $US78.07 as traders fretted over production disruptions in Libya and Venezuela and expectations for big declines in Iranian exports. The US benchmark settled largely unchanged at $US73.85 a barrel.

In Europe, sharemarkets shared in the UK rise. The Stoxx 600 increased 0.6%, while Germany’s DAX and France’s CAC 40 both gained 0.4%. 

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