Trade truce jackpot

Santa Claus rally for markets as US and China seek accord

THE truce in the trade dispute between the US and China should boost rattled financial markets, at least through the year’s end, experts say.

But the stock market’s recent wild gyrations are likely to persist as the two countries strain to reach a permanent accord.

“The all-clear sign hasn’t flashed yet but it’s certainly positive news,” says Mike Loewengart, vice-president of investment strategy at ETrade. The US was set to raise tariffs on $200 billion in Chi- nese goods on January 1. President Donald Trump agreed Saturday in a meeting in Buenos Aires with Chinese Leader Xi Jinping at the G-20 summit to hold off for 90 days while the two sides try to settle their differences.

That looming deadline, as well as Trump’s threat to impose tariffs on an additional $267 billion of goods from China, possibly including iPhones and laptops, had contributed to sharp declines in stocks since early October.

The agreement buys time for the two countries to try to work out their differences in a fight over China’s aggressive drive to acquire advanced technologies.

In the short term, at least, strong market gains could be in the offing.

“I think the market will probably respond quite favourably,” Sam Stovall, chief investment strategist for CFRA, said in reference to the temporary trade accord.

“I do think that a Santa Claus rally is in the making.”

Markets opened the week in Asia with solid gains after the Trump-Xi meeting. In early trading yesterday the Shanghai Composite index jumped 2.7 per cent and the Hang Seng in Hong Kong added 2.8 per cent. Japan’s Nikkei 225 index climbed 1.4 per cent. The Dow and S&P futures contracts were 1.9 per cent and 1.8 per cent higher, auguring a strong start on Wall Street.

After a steep decline in October, stocks steadied in early November. The selling picked up again as investors abandoned high-flying technology stocks amid concerns over the US-China trade tussle and slowing global economic growth and bailed on energy stocks as the oil price dived.

But stocks soared last week, with the S&P 500 rising nearly 5 per cent for the week. The closely watched index is now up 3.2 for the year and, with the US-China tentative agreement now in hand, some analysts expect it could post a gain for the year.

But if the 90-day deadline nears without a formal trade pact, Trump could tweet his displeasure and issue threats, creating more market choppiness, analysts say.