🔒 US/China trade truce cheers markets up – The Wall Street Journal

DUBLIN –The US won’t be slamming Chinese goods with a 25% tariff. Or, at least, it won’t be doing that until March, instead of January. That’s the great news that send markets soaring on Monday – the news that the US and China have declared a temporary truce in their escalating trade war and that they are committed to holding talks in the next few months. It isn’t much, but it was enough to send many emerging market currencies and stock markets shooting upward. That’s good news of course. But there’s a long way to go before a signed trade agreement between the two countries. Both Trump and Xi have a narrow margin for negotiation, given how much of their brand is based on appearing tough on the world stage, so genuine concessions are likely to be hard-won. Both leaders also face tough political tests in the early part of this year – Trump will have to learn to govern without a Republican-controlled Congress and Xi will be approaching China’s annual legislative session in March. The two nations remain very far apart in terms of what they want from a deal. So, while the truce is good news, the story of the US/China trade war is far from over. – Felicity Duncan

U.S. Stocks Rally After Trump-Xi Cease-Fire Eases Trade Worries

By Georgi Kantchev, Akane Otani and Mike Bird

(The Wall Street Journal) Stocks, oil and emerging market currencies rose Monday as the U.S. and China’s trade detente spurred optimism that tensions between the two countries would ease heading into the new year.
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The Dow Jones Industrial Average soared more than 400 points out of the opening gate before paring gains, trading up 188 points, or 0.7%, at 25726. Oil prices bounced off the lows they hit last week, while the Chinese yuan jumped against the U.S. dollar.

The flurry of buying started after President Trump and Chinese President Xi Jinping reached a deal Saturday to temporarily spare Beijing from tariffs that were planned to go into effect at the start of 2019. Investors received more good news early Monday when Mr. Trump said in a tweet that China had agreed to cut tariffs on American-made cars.

The developments, coming after a rough stretch for markets around the world, helped investors put aside some of the fears that they had been grappling with heading into the past weekend’s Group of 20 summit.

Markets had been on edge throughout November, with U.S. crude oil logging its worst month since 2008, 10-year Treasury yields sliding toward the 3% mark and stocks wavering between gains and losses. Analysts had attributed some of that choppiness to market-specific concerns, like fears of an oil glut and worries about sliding technology shares. But many had also said the prospect of trade tensions slowing global growth had also kept markets under pressure throughout much of the year.

“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.”

Some traders cautioned that markets could still lose their steam in the coming months.

In one troubling sign, the yield curve—a barometer in the bond market of investors’ expectations for the U.S. economy—contracted further Monday. The spread between 2- and 10-year Treasury yields was around 18 basis points, according to Ryan ALM, suggesting many are pricing in slower growth ahead.

“I hadn’t talked to many people who were ready to cannonball in,” said Michael Antonelli, equity sales trader at R.W. Baird & Co. “The trade war is a diversion from the real problem, which is a slowing economy.”

Analysts also warned that, although the U.S. and China have managed to work out a short-term truce, the two countries still have yet to resolve broader differences.

“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 U.S. accounts of the deal. In their own statements, Chinese officials made no mention of the three-month deadline.

Still, indications that the U.S. and China were both open to pursuing further talks helped reassure investors that the two countries were able to avert a worst-case scenario. Ahead of the Trump-Xi meeting, some forecasters didn’t think the tariff increase could be avoided.

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 U.S.-China willingness to continue talks is certainly positive,” said Sam Stovall, chief investment strategist at CFRA.

Technology shares that had been pummeled in recent weeks rebounded Monday, with Amazon.com jumping 4.2% and Apple climbing 1.7%. Auto shares rallied, too, with General Motors and Ford Motor adding more than 1% apiece.

Oil prices also climbed sharply, with U.S. crude adding 3% to $52.48 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.

The conflict between the U.S. and China had heavily hit trade-focused economies in Asia and other emerging markets. Relief over the deal helped spur a rebound in stocks and currencies in those regions.

Japan’s Nikkei Stock Average rose 1% Monday, while China’s Shanghai Composite gained 2.6% and South Korea’s Kospi stock index added 1.7%.

Write to Georgi Kantchev at [email protected], Akane Otani at [email protected] and Mike Bird at [email protected]

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