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

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

Wall Street’s S&P 500 set to break records in opening trade, renminbi strengthens.

Stocks advanced, China’s renminbi strengthened and haven assets weakened on Monday, because of 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.

Futures trade expected Wall Street’s S&P 500 to touch a fresh record high in opening trade, picking up the baton from a brisk run higher in Europe and Asia.

Technology stocks were in demand after the US reversed policies preventing American groups from selling software and equipment to Huawei. The softer stance towards China’s telecommunications hardware maker added to the optimistic reaction to the outcome of the talks between presidents Trump and Xi.

The tech-heavy Nasdaq Composite eyed a 1.8 per cent opening gain, while the Stoxx index tracking the sector in Europe was up 2 per cent. China’s CSI 300 index of major Shanghai and Shenzhen-listed stocks rallied 2.9 per cent.

“Expectations were quite low running into G20, that’s why the weekend’s developments are still providing some lift,” said Frances Cheung, a strategist at Westpac.

Sectors sensitive to the outlook for global trade posted robust gains as the Europe-wide Stoxx 600 added 0.9 per cent overall. The index tracking industrial metals stocks was up almost 3 per cent.

Frankfurt’s Xetra Dax 30, home to a range of exporters, was up 1.3 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.

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 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.

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

But analysts warned that a trade deal resolving the longstanding tension between the US and China remained elusive, and that recent economic indicators were still weak.

Westpac’s Ms Cheung added: “The risk rally is understandable but it doesn’t change the growth outlook.”

Andrew Milligan, head of global strategy at Aberdeen Standard Investments, said “the devil will be in the detail”, which left “a Damocles sword hanging” over the markets.

“[Mr] 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 2.5 per cent to $66.36 a barrel.

Hudson Lockett in Hong Kong and Michael Hunter

Additional reporting by Siddarth Shrikanth in Hong Kong

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