Global markets rally after Trump-Xi cease-fire eases trade worries

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  • Mon, 12/03/2018 - 14:05
Global markets rally after Trump-Xi cease-fire eases trade worries
  • El presidente chino, Xi Jinping, habla durante una conferencia en Argentina
  • EFE

By Georgi Kantchev and Mike Bird

United States stocks were poised to open sharply higher on Monday and global markets rallied after a cease-fire in the trade spat between the US and China boosted investor sentiment following a rocky stretch for risk assets, according to a Dow Jones Newswires report made available to EFE.

Futures pointed to opening gains of 1.5 percent for the S&P 500 and 1.8 percent for the Dow Jones Industrial Average.

In Europe, the Stoxx Europe 600 rose 1.3 percent, led by gains in autos and resources stocks. Asian markets finished sharply higher and the Chinese yuan gained against the dollar. 

Oil prices also climbed sharply, with Brent crude, the global price benchmark, jumping 3.7 percent to $61.62 a barrel after Russia and Saudi Arabia agreed to extend efforts by the Organization of the Petroleum Exporting Countries to curb production and Canada's oil-rich province of Alberta also ordered a limit on output. 

On the trade front, President Donald Trump and Chinese President Xi Jinping approved a deal on Saturday at the Group of 20 meeting in Argentina. 

It offers Beijing a reprieve from a planned increase in tariffs, scheduled for Jan. 1, on $200 billion in Chinese goods exports to the US Tariffs were scheduled to rise to 25 percent from 10 percent. 

In an early-morning tweet on Monday, Trump said China had agreed to cut tariffs on American cars from currently 40 percent. 

The trade detente comes as stock markets have stabilized in recent days after a bruising autumn but remain well below the highs they hit earlier in the year. 

Trade frictions, falling oil prices and worries about slowing global growth all curbed risk appetite among investors. 

"After a few rough months, we were due for a relief rally and the trade news is helping fuel it," said Geoffrey Yu, head of the London investment office at UBS Wealth Management. "Trade has been a major headwind for markets and that has now been alleviated to some extent." 

Ahead of the Trump-Xi meeting, some forecasters didn't think the tariff increase could be avoided, making the outcome a positive one for financial markets. 

The suspension of tariff increases relies on progress in talks that both sides aim to complete in the next 90 days covering broader issues, including intellectual property protection. 

"Trade is a big deciding factor for markets because it affects profit growth, so the US-China willingness to continue talks is certainly positive," said Sam Stovall, chief investment strategist at CFRA. 

The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was down 0.2 percent. The 10-year US Treasury yield rose to 3.037 percent, from 3.013 percent. 

Yields move inversely to prices. 

This year's trade tensions have been felt most in the trade-focused economies in Asia and other emerging markets, putting pressure on equities and currencies in those regions. 

On Monday, the Chinese yuan rose 1.1 percent to about 6.8818 per US dollar while the Australian dollar firmed 0.9 percent to $0.738 against the US dollar, its highest point since August. 

Japan's Nikkei Stock Average rose 1 percent, China's Shanghai Composite gained 2.6 percent and South Korea's Kospi stock indexes gained 1.7 percent. 

Strategists at Morgan Stanley raised their forecasts for gains next year in the MSCI China and Hang Seng indexes, suggesting their clients take an overweight allocation relative to other emerging-market stocks. 

But others said while the potential for a three-month time out is welcome news for investors, the short-term truce means broader differences between the two countries haven't been resolved. 

"The result is better than the market expected, but the huge divide remaining continues to suggest a bumpy ride ahead," said Citigroup China economist Li-Gang Liu, pointing to differences in the Chinese and US accounts of the deal. 

In their own statements, Chinese officials made no mention of the three-month deadline. 

Investor sentiment last week was also supported by comments from Federal Reserve Chairman Jerome Powell that led many to believe that the US central bank will raise rates more gradually than previously expected. 

Though analysts still see the Fed raising rates this month and boosting them further next year, a slower pace of increases would offer a potential respite for risk assets, pressured by tightening monetary policy. 

"Whatever the Fed does, the US economy is still going strong and there's no recession on the horizon," Stovall said. 

Oil prices rose sharply amid signs that a meeting later this week between OPEC and its Russia-led allies will lead to output curbs after oil prices have fallen by about a third since early October due to oversupply. 

Late Saturday, Russian President Vladimir Putin said after a meeting with Saudi Crown Prince Mohammed bin Salman that "we have an agreement to extend our deal." 

Russia has yet to decide on how much production it would cut, Putin said, underscoring the remaining challenges ahead. 

Separately Qatar said it plans to leave the OPEC, a surprise decision for a member that has long played a key role inside the cartel but produces about 600,000 barrels a day.


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