Stock Market Soars After Trade Tariff Truce

Irving Hamilton
December 7, 2018

-China trade war boosted global stocks to their highest in roughly three weeks on Monday, while triggering a dollar sell-off and pushing the Chinese yuan and several trade-dependent currencies higher. "Particularly contentious issues, like intellectual property rights and market access, have yet to be addressed, and we wouldn't be surprised if no agreement is reached in the 90-day period during which the United States has pledged to suspend its previously-planned tariff increases". Oil prices jumped almost 4 percent.

Deflating hopes of a swift resolution to the Sino-U.S. trade war knocked world stocks off a three-week high on Tuesday, while recession warning lights in U.S. bond markets weighed on the dollar.

But even before the trading day ended, major USA indexes pulled back from intraday highs as investors pondered unresolved issues between the two countries. Arone noted some "very sticky" issues remain unresolved between the world's two top economies. On Monday, the dollar lost 1.07 percent against the Chinese currency, its steepest percentage fall since August 25.

MSCI's all-country world index climbed 0.8 per cent in its sixth straight day of gains and hit its highest since November 9.

U.S. President Donald Trump said China has agreed to "reduce and remove" tariffs below the 40 percent level now charged on U.S. -made vehicles.

Both Brent crude and WTI initially climbed around five per cent, boosting regional energy firms - PetroChina was up more than four per cent in Hong Kong and Woodside Petroleum up 3.5 per cent in Sydney as traders looked ahead to a weekend meeting of OPEC and key non-OPEC members, where they are expected to announce how much they will cut and for how long. If the two countries fail to strike a deal at the end of the agreed period, which starts on January 1, the United States said it would go ahead with its tariff increase on US$200 billion worth of Chinese imports from 10 per cent to 25 per cent.

ANALYST'S TAKE: "Markets are reflecting a fragile truce between the US and China after an initial sigh of relief".

"Global stocks are starting the week in impressive fashion, with news of a breakthrough in talks between the United States and China providing a boost", said IG analyst Joshua Mahony. China's offshore yuan CNH= gained about 1 percent to 6.8796. Benchmark U.S. crude gained 56 cents to $53.51 per barrel in electronic trading on the New York Mercantile Exchange.

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Ozil has not played in almost a month after being benched against Bournemouth and then missing the last three games with a recurrence of back spasms.

"Until the British parliament votes on the deal next week we are going to see a steady drum beat of Brexit headlines, which is going to keep the pound weak", Danske Bank strategist Morten Helt said.

The pound rebounded above $1.28 after the European Court of Justice (ECJ) ruled that European Union countries can unilaterally end a divorce process from the bloc.

The South Korean Won, which is often measured as the Asian currency proxy for investor appetite towards risk is higher by more than 0.91% while the Chinese Yuan is stronger by as much as 1.09%.

Adding to worries over the outlook for the global economy, the yield curve between USA three-year and five-year notes, and between two-year and five-year paper inverted on Monday - the first parts of the Treasury yield curve to invert since the financial crisis, excluding very short-dated debt. Yields on two maturities at the front of the curve rose above longer-dated 5-year notes for the first time in more than a decade. The euro rose to $1.1372 from $1.1353.

Yields on riskier southern European bonds were down across the board, though Italian bonds trimmed some gains after the European Central Bank revealed Italy's share of ECB capital would be cut slightly.

At the meeting, the producer group, as well as non-OPEC member Russian Federation, is expected to announce supply cuts aimed at reining in a production overhang that has pulled down crude prices by around a third since October.

USA crude oil futures settled at $52.95 per barrel, up 3.97 percent. The stock has risen nearly 20 per cent this year, and outperformed the Hang Seng Property Index by 5.9 percentage points in the past month.

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