Easing of US-China trade tension boosts stocks and dollar

New York — Global stock markets edged higher on Monday and the dollar rallied to a five-month peak as trade tension eased between the US and China.

Italy’s borrowing costs climbed as two anti-establishment parties grew closer to power.

On Sunday, US treasury secretary Steven Mnuchin declared the trade battle with China “on hold” after both countries agreed to drop their tariff threats in favour of hashing out a broader deal.

“People view this trade war ‘on hold’ as a positive,” said Robert Pavlik, chief investment strategist and senior portfolio manager at SlateStone Wealth. “They are going to want to be back in the market.” On Wall Street, equity indices advanced on the trade news as well as $28bn worth of US merger deals.

The Dow Jones Industrial Average rose 340.52 points, or 1.38%, to 25,055.61, the S&P 500 gained 21.6 points, or 0.80%, to 2,734.57 and the Nasdaq Composite added 45.96 points, or 0.62%, to 7,400.30.

MSCI’s gauge of stocks across the globe gained 0.50%, while the pan-European FTSEurofirst 300 index rose 0.31%. The trade news boosted the US dollar to a five-month high as investors further pared back short positions on the greenback.

The dollar index rose 0.13%, with the euro down 0.14% to $1.1758.

“There’s certainly a ‘feel-good’ sentiment on risky assets” due to the US trade announcement, said Stephane Barbier de la Serre, a strategist at Makor Capital Markets.

Barbier de la Serre cautioned there were few details about the US-China agreement to call it a definitive turning point.

The yen weakened 0.41% versus the greenback to ¥111.22 per dollar, while the pound was last trading at $1.342, down 0.38% on the day.

The yen was pressured by recent weaker Japanese data, the US-China trade war easing and elevated US treasury yields, analysts said.

The euro has suffered under concerns about political uncertainty in Italy as the country’s far-right League and the 5-Star Movement agreed on a candidate to lead their planned coalition government and to implement spending plans seen by some investors as threatening the sustainability of Italy’s debt pile.

The Milan bourse started the day sharply lower but progressively clawed back losses and limited its fall to 0.8%. Italy’s 10-year bond yield rose to its highest since April 2017 before easing back.

Oil prices held near three-and-a-half-year highs on the easing trade tensions but trading was choppy after a brief dip into negative territory.

US crude rose 0.95% to $71.96 per barrel and Brent was last at $78.81, up 0.38% on the day.

The market kept an eye on Venezuela, where President Nicolas Maduro faced new international censure after his re-election in a vote denounced by his foes as a farce in the crisis-stricken Opec nation.

Oil prices had been supported by plummetting Venezuelan production, in addition to solid global demand and supply concerns stemming from tension in the Middle East.

Reuters