Global stocks rally on renewed hope of US-China trade deal

Stocks advanced, China’s renminbi strengthened and haven assets weakened on Monday, buoyed by renewed hopes of a US-China trade deal after the leaders of the world’s two biggest economies agreed to resume negotiations following weeks of trepidation across global markets.

European equities indices took the baton from a brisk run higher in Asia, with stocks sensitive to the outlook for global trade in the lead. The international Stoxx 600 was up 1 per cent, led by sectors sensitive to the outlook for trade relations. The Stoxx index tracking carmakers rose 2 per cent. London’s FTSE 100 rose 0.8 per cent.

Frankfurt’s Xetra Dax 30, home to a range of exporters, was up 1.5 per cent and on course to return to bull market territory, with the rally leaving it on course to rise 20 per cent above its December closing low.

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"Expectations were quite low running into G20, that's why the weekend's developments are still providing some lift," said Frances Cheung, head of Asia macro strategy at Westpac.

Haven assets lost some lustre, with gold falling 1.8 per cent, on course for its biggest single-session fall in a calendar year. Japan’s yen weakened by 0.6 per cent to ¥108.52 per US dollar. The yield on 10-year US Treasuries rose 4.5 basis points as investors’ move out of the debt gathered pace, taking it to 2.0447 per cent.

China’s CSI 300 index of major Shanghai and Shenzhen-listed stocks rallied to close 2.5 per cent higher.

The trading pattern followed a meeting by US president Donald Trump and his Chinese counterpart Xi Jinping on the sidelines of the G20 summit in Osaka on Saturday, where Mr Trump pledged not to introduce more tariffs on Chinese goods and softened his stance on telecoms maker Huawei.

Technology stocks were in demand, with the index tracking the sector in Europe up 2 per cent. The equivalent benchmark for industrial metals makers was up 2.4 per cent.

But Ms Cheung warned that a trade deal resolving the longstanding tension between the US and China remained elusive, and that recent economic indicators — particularly from Taiwan, which is heavily exposed to Chinese trade — were still weak.

“The risk rally is understandable but it doesn’t change the growth outlook,” said Ms Cheung.

Andrew Milligan, head of global strategy at Aberdeen Standard Investments, said businesses and investors would be reassured to some extent by the weekend truce, which included the US allowing Huawei to continue doing business with some US companies and China agreeing to buy more agricultural goods from the US.

“The devil will be in the detail, of course,” said Mr Milligan. “On the downside, a Damocles sword continues to hang over the markets. Trump has indicated that he is in no hurry to finish a deal, and Huawei remains on a short rope as permission to operate in the US could be withdrawn at any time.”

Kerry Craig, JPMorgan Asset Management’s global market strategist described Monday’s trading as a “collective sigh of relief,” and also sounded a cautious tone:

“There is still no guarantee that a deal can be reached or even that any deal would completely address all of the differences that have driven investor anxieties, particularly when it comes to technology and the enforcement of a possible deal.”

But it was enough for China’s renminbi to strengthen, pulling away from the Rmb7 per dollar mark, with the onshore rate — which is permitted to move 2 per cent in either direction of a daily midpoint set by the central bank — rising as much as 0.4 per cent to Rmb6.837 per dollar while the more lightly controlled offshore rate strengthened 0.7 per cent to a seven-week high of Rmb6.817.

Traders had expected the Chinese currency to weaken past the Rmb7 mark if talks broke down at the G20 summit.

Oil prices climbed, boosted by brighter prospects for global trade as well as an extension of production cuts by the so-called Opec+ group since 2016, which includes countries that are not part of the oil producing cartel.

Brent crude oil, the global benchmark, advanced 2.9 per cent to $66.61 a barrel. – Copyright The Financial Times Limited 2019.