Global Markets Surge on Trade Truce Hopes

Galtero Lara
Diciembre 7, 2018

-China trade war boosted global stocks to their highest in about three weeks on Monday, while sending the dollar lower and the Chinese yuan and several trade-dependent currencies higher.

Tokyo tumbled 2.4 percent on profit-taking and a strong yen, while Hong Kong lost 0.3 percent and Sydney and Singapore shed one percent each.

Asian markets mostly dropped Tuesday as the previous day's euphoria over the China-US trade war ceasefire gave way to questions about whether the two can ultimately resolve their differences. The deal should keep their trade war from escalating as they try to bridge differences with talks aimed at reaching a deal within 90 days.

Moreover, none of the commitments that USA officials said had been given by China, including reducing its 40 per cent tariffs on autos, were agreed to in writing and specifics had yet to be hammered out.

On oil markets both main contracts posted more healthy gains, adding more than one percent, having racked up gains of nearly four percent Monday on the trade deal, the Russia-Saudi output agreement and a cut in production in Canada.

Crude oil has not been included in the list of hundreds of products each side has slapped with import tariffs, but traders said the positive sentiment of the truce between the world's two biggest economies was also driving crude markets.

"China can deliver on the easy things like buying more agriculture as they need those goods, but when you go into the territory of intellectual property, and industrial and technology policy, you are clashing with China's long-term aims", he said.

Global markets saw a boost as world stocks rose almost 1 percent after the G-20 summit. United States crude was 0.5 per cent higher at $53.23 per barrel.

Other developers such as mainland firm Jingrui Holdings also rose 4.3 per cent to its highest level since October 2 in its seventh straight run.

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The combination of Dollar weakness and improving risk appetite is a welcome development for most major emerging market currencies. By 1145 GMT, it was just 0.2 per cent lower, knocking the euro off the day's highs.

Sterling traded lower on fresh Brexit nerves. The Australian dollar, viewed as a barometer of Chinese growth, was 0.5 percent higher against the greenback. Against the euro, it slipped 0.3 per cent to 89.05 pence.

"Global stocks are starting the week in impressive fashion, with news of a breakthrough in talks between the U.S. and China providing a boost", said IG analyst Joshua Mahony.

However, the dollar has already come under some pressure from a recent shift by the US Federal Reserve to a slightly more dovish stance.

Powell was scheduled to testify on Wednesday to a congressional Joint Economic Committee.

The latest market rally would not bring a return to a more hawkish Fed stance, Berenberg economist Florian Hense said. We are basically approaching the end of the rate hiking cycle.

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. Ten-year yields traded around 3.03 per cent.

Overnight, the Dow Jones Industrial Average closed 1.13 per cent higher, the S&P 500 gained 1.09 per cent and the Nasdaq Composite added 1.51 per cent.

Yields on riskier southern European bonds were down across the board. The two-year yield touched 2.8251 per cent compared with a United States close of 2.833 per cent.

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