Stocks rise in wake of truce in trade war
Stocks rallied for a second day after the U.S. and China declared a truce in their trade war, while the euro strengthened and oil rallied. A portion of the U.S. yield curve inverted for the first time in more than a decade.
The Dow, Nasdaq and S&P rallied at the opening, before trimming advances, after leaders of the two countries agreed to hold off on new tariffs and intensify trade talks. European and Asian shares closed higher. The difference between three- and five-year Treasury yields dropped below zero, in what could be the first signal that the market is putting the Federal Reserve on notice that the end of its tightening cycle is approaching.
“The very positive reaction from stock means that for the time being, investors have put behind them the concern that the tariff war might escalate,” said Donald Selkin, chief market strategist at Newbridge Securities. “On the other hand, there are issues out there which could cause a cooling off of the current optimism.”
Oil was jolted higher by efforts across the globe to support prices as Saudi Arabia and Russia extended their pact to manage the market and Canada’s largest producing province ordered unprecedented supply cuts. Optimism was dented slightly after Qatar said it was leaving OPEC, just as the group prepares to meet this week.
The truce between President Donald Trump and Chinese President Xi Jinping at the Group of 20 summit in Argentina has gone some way in calming investor fears over the state of global growth after a tumultuous period for risk assets.
The U.S. had been scheduled to push ahead Jan. 1 with increased tariffs on $200 billion worth of Chinese goods. Going forward, investors will assess the prospects for an end-of-year equity rally, while oil traders will continue to focus on any OPEC-related headlines to gauge the likely scale of production cuts.
“It’s easy to see the trade deal as a half empty — that it’s just a postponement and that they’ll work together but that there really isn’t any kind of resolution,” said Jeff Kleintop, chief global investment strategist at Schwab Center for Financial Research. “But I think you can see it as a half glass full. The EU and Japan have joined with the U.S. in some WTO complaints in recent months. That adds some weight to U.S. demands on China.”
Elsewhere, the pound erased a gain as the threat of a vote to bring down British Prime Minister Theresa May’s government looms should Parliament reject her Brexit deal. That raises the stakes even further as lawmakers begin debating her plan this week. China’s yuan climbed with emerging market assets. Gold and copper rallied, as did most other commodities.
In the U.S., the S&P 500 had risen 0.9 percent Monday afternoon, while the Dow Jones Industrial Average increased 1 percent and the Nasdaq Composite Index rose 1.2 percent.