Stocks gain on preliminary US-China trade deal

NEW YORK (Reuters): Global stock markets rallied yesterday, lifting Wall Street’s three major indexes and a global gauge of equity performance to record highs after a preliminary US-China trade deal pointed to stronger global growth, helping to drive up oil prices.

A pan-European index also hit a record high and the landslide election victory last week by British Prime Minister Boris Johnson pushed the benchmark FTSE 100 to its biggest single-day gain in more than three years.

Chinese stocks rose to a six-week closing high as investors cheered the trade deal and growth in China’s industrial and retail sectors beat expectations in November.

But gold held steady and the dollar eased as investors sought clarity on the deal’s fine print.

“It’s good news but we can’t celebrate yet,” said Mobius Capital Partners Founding Partner and Templeton Emerging Markets Group former Executive Chairman Mark Mobius.

“This agreement is dependent on the degree to which the Chinese comply. This conversation will continue as there’s so many issues,” Mobius said.

The ‘phase one’ deal suspended a threatened round of US tariffs on $ 156 billion of Chinese imports that was scheduled to take effect on Sunday. The US also agreed to halve the tariff rate, to 7.5%, on $ 120 billion worth of Chinese goods.

MSCI’s gauge of stocks across the globe gained 0.79% and the pan-European STOXX 600 index rose 1.52% to hit record highs.

On Wall Street, the Dow Jones Industrial Average rose 164.32 points, or 0.58%, to 28,299.7. The S&P 500 gained 25.85 points, or 0.82%, to 3,194.65 and the Nasdaq Composite added 93.23 points, or 1.07%, to 8,828.11.

Apple Inc., among the biggest companies to benefit from the deal, rose 1.87%. Chipmakers that make the components for its iPhones also gained.

On Sunday, US Trade Representative Robert Lighthizer said the trade deal was “totally done” and that he expected it to nearly double US exports to China over the next two years.

For much of 2019 investors have fretted over fears of a global recession, a good part driven by the prolonged US-China trade dispute, said Candice Bangsund, a portfolio manager of global asset allocation at Fiera Capital in Montreal.

Equities are poised for further upside because of receding trade headwinds and reinflationary efforts by the Federal Reserve, the European Central Bank and the Bank of Japan, she said.

“From a ‘what’s priced-in standpoint’ it’s reduced uncertainty. What’s not priced in, though, is the impact it’s going to have on the global economy,” Bangsund said.

Britain’s FTSE 100 surged 2.7% in the largest single-day gain since the immediate aftermath of the vote to leave the EU in June 2016, when the blue-chip index rose 3.6% on a rally in stocks with global exposure.

Currency markets were mostly on hold.

The dollar index fell 0.13%, with the euro up 0.16% to $ 1.1137. The Japanese yen weakened 0.30% versus the greenback at 109.66 per dollar.

US Treasury yields rose as traders took an optimistic view of a preliminary US-China trade deal and its impact on growth.

Benchmark 10-year notes last fell 19/32 in price to yield 1.8853%.