Global stocks, dollar rebound on latest US-China ‘trade call’

Crude oil prices rise more than 3 pct

NEW YORK, Aug 13, (RTRS): US and European stocks jumped, the dollar strengthened and bond prices rose on Tuesday on news US and Chinese officials held a telephone call to discuss tariffs and planned another call in two weeks, easing concerns about the US-Sino trade war.

The Trump administration will delay imposing a 10% tariff on certain Chinese products, including laptops and cellphones, that had been scheduled to start next month, the Office of the US Trade Representative later said.

Equity, debt and FX markets sharply reversed course minutes after Wall Street opened for trade on news from Hong Kong about a call Chinese VicePremier Liu He held with US officials, China’s Ministry of Commerce said in a statement.

Liu spoke with US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin on Tuesday evening, the statement said.

The benchmark S&P 500 index rose more than 1% and the Nasdaq more than 2% on the news. Major stock bourses in Europe also rose, with the Euro STOXX index of eurozone shares rising more than 1%.

Major equity indices had tumbled roughly 5% since late July on growing concerns the US-Chinese trade spat would slam global growth and fester unresolved until after US presidential elections in November 2020.

Markets also had been lower, with gold earlier hitting a more than sixyear high, as the ongoing unrest in Hong Kong and a rout in the Argentine peso drove investors already unnerved by the trade war into havens such as bullion, bonds and the yen.

The yen benefits in moments of geopolitical uncertainty and during economic downturns. The US dollar rose 1.29% to 106.65 yen per dollar.

Yields on the benchmark US 10-year Treasury notes hit session highs, while those on 30-year Treasury bonds rallied from more than three-year lows. Traders earlier were bracing for 30-year yields to sink to a record low below 2.08%.

The 10-year Treasury fell 16/32 in price to push its yield up to 1.6949%.

Oil prices rose over 3% on the trade news. Brent futures rose $1.94, or 3.6%, at $60.51 a barrel, while US West Texas Intermediate (WTI) crude rose $1.92 to $56.85 a barrel.

Prior to Tuesday’s gains, Brent had traded down more than 20% since hitting its year high in April.

The Argentine peso was less volatile, trading in a tighter range, down 4.98% at 54.7545 to the dollar.

Spot gold dropped 0.6% $1,502.71.

US

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US stocks surged more than 1.5% on Tuesday after the Trump administration said it would delay 10% tariffs on some Chinese products, including laptops and cell phones, driving a 4% rally in shares of iPhone maker Apple Inc.

A 4.2% jump in shares of Apple, which makes iPhones and MacBooks in China, along with a rise in chip stocks pushed the technology sector 2.24% higher. The Philadelphia chip index rose 3.16%.

Industrial bellwethers 3M Co and Caterpillar Inc, traditionally among the most sensitive to trade concerns and China, jumped about 3% each, while the S&P 500 retailing index also jumped 2.12%.

Wall Street’s main indexes had initially opened lower, adding to a global slide in stocks due to geopolitical concerns, with a Labor Department report also showing the core consumer price index rose 2.2% in the 12 months through July.

For some analysts, that data spoke against the US Federal Reserve delivering aggressive further cuts in interest rates, expectations of which have been an important pillar propping up sentiment since June.

UK

UK shares fell on Tuesday, as worries over protests in Hong Kong, the US-China trade spat and the health of the British economy continued to fuel a risk-off sentiment, even though travel firm TUI rose after quarterly results.

The main index shed 0.3% as it fell for the third straight session. The more domestically-focused mid-cap FTSE 250 gave up 0.5% by 0752 GMT, despite a near 15% surge in trading platform Plus500 after half-year results.

London-listed shares of tour operator TUI advanced 3.5% after it said robust business outweighed problems with the grounding of Boeing’s 737 MAX jets in the third quarter and upheld its annual earnings view.

Protests in Hong Kong, now in their tenth straight week, have hurt shares of blue-chip constituents with dealings in Asia, such as HSBC and Standard Chartered.

This, as well as pressure from simmering US-China trade tensions and worries over the health of the global economy has nullified any benefit the exporter-heavy FTSE 100 may enjoy from a weaker pound. The index is on track for its biggest monthly fall since October 2018.

UK-focused banks and other domestically-prevalent stocks, meanwhile, have been hit by Brexit jitters, with Prime Minister Boris Johnson seemingly steadfast on his promise to deliver Brexit with or without a deal on Oct 31.

Europe

European shares fell on Tuesday, as negative news from around the globe including Italy and Argentina’s political uncertainty and persistent unrest in Hong Kong, compelled investors to take refuge in safe harbors like bonds and gold.

The pan-European STOXX 600 index fell 0.4% by 0810 GMT, with European lenders weighing the most on the benchmark.

Milan-listed shares were down 0.7%, hitting their lowest since June as rightwing League leader Matteo Salvini’s drive for early elections hit a road bump with parliamentary leaders failing to decide when the Senate should debate his no-confidence motion.

Italian markets had tumbled last week when Salvini pulled his support from the coalition arrangement at the center.

Spanish stocks, particularly banks which have exposure to Latin America, underperformed as investors dumped Argentine assets on worries over the return of populist policies after President Mauricio Macri was trounced in presidential primaries.

Argentina’s peso collapsed on Macri’s defeat, losing roughly 15% of its value to 52.15 per dollar after crumbling to an all-time low of 61.99 earlier on Monday.

Corporate news was light as the second-quarter earnings season draws to a close.

Asia

Tokyo stocks fell on Tuesday, sending a key index to end at a two-anda-half month low following a broad sell-off on Wall Street overnight and the stronger yen.

The benchmark Nikkei 225 Stock Average on the Tokyo Stock Exchange (TSE) lost 229.38 points from Friday to stand at 20,455.44, the lowest closing level since June 4.

The broader Tokyo Stock Price Index, which includes all shares on the market’s First Section on the TSE, was also down 17.27 points, to stand at 1,486.57.

Sell orders overwhelmed Tokyo stocks after US stocks fell Monday, with the Dow Jones Industrial Average plunging 389.73 points, while the Nasdaq Composite tumbled 95.73 points on increasing concerns about US-China trade friction.

In addition, investors were opting for the Japanese currency as safe-haven assets amid the political turmoil in Hong Kong.

The yen’s appreciation against the dollar to a seven-month high in the lower JPY 105 level in New York led market players to sell export-oriented issues, as the stronger yen cuts the value of Japanese exporters’ profits.

The Japanese financial market was closed Monday for a national holiday.

Oil

Oil prices rose more than 3% on Tuesday after the United States said it will remove some products from its China tariff list, easing concerns over a global trade war that has pummeled the market in recent months.

Brent crude futures were up $1.75, or 3.1%, from the previous settlement at $60.32 a barrel by 1357 GMT. The international benchmark has lost more than 20% since hitting its 2019 high in April.

US West Texas Intermediate (WTI) futures were up $1.38, or 2.5%, at $56.31.

The US dollar index jumped and bond yields also turned higher after the US Trade Representative said some products were being removed from the China tariff list.

Oil prices see-sawed earlier in the day, caught between demand worries and rising global supplies and expectations for deeper production cuts from leading producers.

US oil output from seven major shale formations is expected to rise by 85,000 barrels per day (bpd) in September to a record 8.77 million bpd, the Energy Information Administration forecast in a report.

Saudi Arabia, the de-facto leader of the Organization of the Petroleum Exporting Countries, last week said it planned to keep its crude exports below 7 million bpd in August and September to help to drain global oil inventories.

The kingdom’s plan to float its national oil company Saudi Aramco in what could be the world’s largest initial public offering (IPO) gives it further impetus to boost prices.

“With Saudi Aramco reportedly eyeing an IPO once again, there is some support to the idea that Saudi Arabia has a heightened interest in strong crude prices and will cut its own output accordingly,” Vienna-based consultancy JBC Energy said.

OPEC and its allies, known as OPEC+, have agreed to cut 1.2 million bpd of production since Jan 1.

Currencies

The US dollar took off on Tuesday morning, clobbering the Japanese yen, after the Trump administration said it would delay 10% tariffs on some Chinese products scheduled to begin next month, a significant concession in the The US dollar rose 1.49% to 106.85 Japanese yen per dollar. The yen is a safe-haven asset which benefits in moments of geopolitical uncertainty and during economic downturns. The USChina trade war had begun to affect economic growth in the United States and raise fears that the conflict could lead to a recession.

Other safe havens like Treasury bonds also saw prices fall as investors moved money into riskier assets. The dollar index was 0.38% higher at 97.749, and the offshore Chinese yuan was 1.38% stronger at 7.0050.

The news had a modest effect on interest rate forecasts for 2019. Two to three cuts have been priced in by the end of the year, though on Tuesday morning expectations of two rate cuts increased to 47.9% from 45.7% a day prior, according to CME Group’s FedWatch tool.

The US dollar was also buoyed on Tuesday after the United States reported that consumer prices in July increased, though the easing of trade tensions could tamp down further inflationary pressures.