Global markets get boost from US-China truce
European shares opened sharply higher, with the DAX — the most sensitive to China and trade war fears — leading the way with a 2.5% rise
London — A truce between US and Chinese leaders on trade tariffs provided boosted global markets on Monday, fuelling a nearly 1% surge on world stocks and pushing emerging currencies higher against the dollar.
European share benchmarks opened sharply higher, with Germany's DAX — the most sensitive to China and trade war fears — leading the way with a 2.5% rise to its highest level since November 14, and Wall Street too was set for a stronger session.
The gains came after China and the US agreed at the weekend to halt additional tariffs on each other. The deal prevents their trade war escalating as the two sides try to bridge differences with new talks aimed at reaching a deal within 90 days.
US President Donald Trump also said that “China has agreed to reduce and remove tariffs on cars coming into China from the US. Currently the tariff is 40%”. That helped boost European vehicles more than 4%
“We have a deal. That's wonderful news for global financial markets and signalling the start for a year-end rally in risky assets,” said Bernd Berg global macro strategist at Woodman Asset Management.
“We are going to see a rally in emerging market and US equities, emerging-market currencies and China-related assets such as Australia. I expect the rally to last until year-end.”
MSCI's all-country world index climbed 0.9%t in its sixth straight day of gains and hit its highest level since November 9. Emerging equities rose 2.1% and were set for their strongest day in a month.
Asian shares kicked off the gains, with Chinese mainland markets rising more than 2.5% while Japan's Nikkei gained as much as 1.3% to a six-week high.
The risk-on mood drove the dollar 0.4% lower against a basket of currencies while against the euro it slumped 0.6%.
The greenback has already come under some pressure from the recent subtle shift in the US Federal Reserve's policy communication to a slightly more dovish stance. Comments by Federal Reserve chair Jerome Powell were interpreted by markets as hinting at a slower pace of rate hikes.
Powell was scheduled to testify on Wednesday to a congressional Joint Economic Committee but his hearing is expected to be postponed to Thursday because major exchanges will be closed on Wednesday in honour of former U.S. President George H.W. Bush, who died on Saturday.
Florian Hense, economist at Berenberg, said the market rally would not bring a return to a more hawkish Fed stance.
"We would need to see some rebound in economic activity to lift expectations of more rate hikes," he said.
The Powell comments had sent US Treasury yields lower but they pulled back from the over two-month lows hit on Friday as 10-year yields rose three basis points to 3.04%.
Germany's 10-year government bond, the benchmark for the euro area, was set for its biggest one-day yield jump in a month, rising four basis points to a high of 0.347%. Yields on riskier southern European bonds fell across the board, with Italian yields down about 10 basis points to new two-month lows.
Emerging currencies were among the main beneficiaries of dollar weakness, with an MSCI index up 0.6%. It was led by China's yuan, which rose 1% for its biggest daily gain since February 2016.
“Such positive sentiment won't fade very soon ... [the 90-day] period is not short, it's long enough to soothe market sentiment,” said a trader at a foreign bank in Shanghai.
Elsewhere, oil soared more than 5%, a positive start after it had posted its weakest month in more than 10 years in November, losing more than 20% as global supply outstripped demand.