Stocks and dollar rise as trade war put ‘on hold’
LONDON (Reuters) – Stocks and the dollar were on the rise on Monday after the US-China trade war was declared “on hold” while in Europe, Italy’s borrowing costs climbed and the Milan bourse retreated as two anti-establishment parties got closer to power.
Wall Street was set to open higher, with U.S. S&P mini futures up 0.6%, while the pan-European STOXX 600 was up 0.3%, hovering near three-month highs and London’s FTSE 100 hit a new record, up 0.5% following a positive session in Asia.
“There’s certainly a ‘feelgood’ sentiment on risky assets” due to the US trade announcement, said Stephane Barbier de la Serre, a strategist at Makor Capital Markets.
US Treasury Secretary Steven Mnuchin declared the US trade war with China “on hold” following an agreement to drop their tariff threats that had roiled global markets this year.
Mnuchin and US President Donald Trump’s top economic adviser, Larry Kudlow, said the agreement reached by Chinese and American negotiators on Saturday set up a framework for addressing trade imbalances in the future.
Barbier de la Serre cautioned, however, that given the lack of details available about the agreement between the US and China, it was too early to call it a definitive turning point.
He added that a number of question marks, such as on the prospects for world growth, inflation and rising rates, should also keep investors on their toes.
As safe-haven demand for debt fell, US bond prices were under pressure, keeping their yields not far from last week’s peaks with the 10-year Treasuries yield at 3.072%, near a seven-year high of 3.128% hit on Friday.
In the currency market, higher US yields helped to strengthen the dollar about 0.15% against a basket of currencies while the euro dipped 0.1% to $1.1762.
The common currency was also under pressure as Italy’s far-right League and the 5-Star Movement agreed on a candidate to lead their planned coalition government and implement spending plans which some investors believe threaten the sustainability of the country’s debt pile.
“It is something that creates a lot of nervousness, but of course on the other hand one has to wait,” ECB governing council member Ewald Nowotny said on Monday morning.
The Milan bourse started the day sharply lower but progressively claimed back losses and limited its fall to 0.3%.
Italy’s 10-year bond yield nearly rose to 3% in early morning, their highest level since July 2017 but also eased back to about 2.28%.
Oil prices held firm near 3-1/2-year highs also on easing trade tensions. Brent crude futures were at $78.18 per barrel, down 0.4%.
The market is also keeping an eye on Venezuela, where President Nicolas Maduro faces fresh international censure after his reelection in a vote foes denounced as a farce, cementing autocracy in the crisis-stricken OPEC nation.
Oil prices have been supported by plummeting Venezuelan production, in addition to a solid global demand and supply concerns stemming from tensions in the Middle East.
The “risk on” sentiment on the market also spurred gains copper prices with the exception of aluminum, which was pressured by more than 100,000 tons of inflow last week.