Wall Street eyes return to record highs as stocks cheer trade reprieve

LONDON (Reuters) – Stocks rallied and bonds retreated on Monday as the United States and China agreed to restart trade talks, leading investors to cut back wagers on aggressive policy easing by the major central banks.

The dollar gained against the safe-haven yen as Treasury yields rose and futures reined in bets for a half-point rate cut from the US Federal Reserve this month.

The Trump-Xi G20 meeting “played out as well as possible,” said Hans Peterson, SEB Investment Management’s global head of asset allocation. “So it gives us time to digest and get a bit better activity in the global economy.”

The United States and China agreed on Saturday to resume trade negotiations after President Donald Trump offered concessions to his Chinese counterpart, Xi Jinping, when the two met at the sidelines of the G20 summit in Japan.

Those included no new tariffs and an easing of restrictions on tech company Huawei. China agreed to make unspecified new purchases of US farm products and return to the negotiating table.

The initial reaction was one of relief that at least new tariffs were avoided.

Europe’s STOXX 600 climbed 1% and Japan’s Nikkei 2.1% to hit twomonth highs. MSCI’s broadest global index added 0.3%, having just missed its best first half to a year.

Chinese blue chips jumped 2.6% to their highest since late April, and Germany’s export-heavy DAX gained 1.5% to its highest since August. The Huawei hiatus and M&A activity pushed Europe’s tech sector to a one-year peak.

Wall Street was looking on course to return to record highs with S&P 500 and Nasdaq futures up 1.1% and 1.7%. In the bond market, though, Treasury futures dipped as yields on 10-year notes edged up to 2.02%.

Fed funds dropped over five ticks as the market scaled back the probability of a half-point rate cut this month to around 15%, from nearer 50% a week ago.

Central bank umbrella group, the Bank for International Settlements, had urged top central banks over the weekend to preserve their ammunition rather than deplete it chasing higher growth.

“I think the Fed expectations in the market are very aggressive,” SEB’s Peterson said. “Possibly a bit too aggressive.”