Friday, 14 December, 2018

Markets slip as China-US trade deal joy subsides

US-China trade truce gives global stocks and oil a big lift Asian shares fall as lift from U.S.-China trade truce ends
Ginger Lawrence | 07 December, 2018, 14:42

A White House official said it started on December 1.

A truce between U.S. and Chinese leaders on trade tariffs boosted global markets today, fuelling an advance of almost one per cent by world stocks, setting up gains on Wall Street and pushing emerging-market currencies higher against the dollar.

"Today is mostly about celebrating the fact that the US and China have delayed what could have been the some of the worst-case scenarios regarding their trade relations", said Michael Arone, chief investment strategist at State Street Global Advisors. 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. In return, the White House said Xi will buy a "very substantial amount" of US agricultural, energy and industrial products.

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.

"The most complex issues in the negotiations haven't even been brought to the surface yet", said Stephen Gallo, European Head of FX Strategy at BMO Capital 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.

Mid-session the Dow's gain had shrunk to 0.6 per cent while Frankfurt, London and Paris, who had taken their cue from strong rises in Hong Kong and Shanghai, saw early gains of around two per cent slide to 1.8, 1.2 and 1.0 respectively by the close. Brent crude rose 60 cents to $62.29 per barrel.

Early in Asian trade, the yield on benchmark 10-year Treasury notes fell to 2.9661 per cent compared with its USA close of 2.991 per cent on Monday.

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Sterling fell on Monday to its lowest level since the end of October as growing concerns about British parliamentary approval for a proposed Brexit deal prompted investors to sell the currency. The euro was 0.2 percent higher against the greenback. The Australian dollar - viewed as a barometer of Chinese growth - rocketed more than 1 percent at one point to $0.7394. Against the euro, it slipped 0.3 per cent to 89.05 pence. National Australia Bank analysts said in a note to clients.

The dollar originally came under pressure last week on Powell's comments that rates were nearing neutral levels, which markets interpreted as signaling a slowdown in the Fed's rate-hike cycle.

Powell was scheduled to testify later this week to a congressional Joint Economic Committee.

However, he said markets needed to see a further easing in trade tensions for the rally to continue.

Telecommunications equipment giant ZTE, which was temporarily banned by the United States from buying parts from American suppliers for three months this year, continued to be positive ending up 0.72 per cent to HK$16.86, though gains were marginal in comparison to its 7.9 per cent jump on Monday. Ten-year yields traded around 3.03 per cent.

Yields on riskier southern European bonds were down across the board. The two-year yield also fell, but by a narrower margin, touching 2.8028 per cent compared with a USA close of 2.833 per cent.

Elsewhere, oil soared more than five per cent after posting its weakest month in more than 10 years in November, losing more than 20 per cent as global supply outstripped demand.