Markets gain as optimism about US-China trade talks grows

India’s BSE Sensex settled 130.77 points or 0.36 per cent higher at 35,980.93 points after it shuttled 280 points between a high of 36,037.35 and a low of 35,753.95. The NSE Nifty50 closed 30.35 points or 0.28 per cent up at 10,802.15 points. The Indian rupee stood weaker by 52 paise at 70.20 per dollar from its previous close of 69.68.

International Brent crude futures gained $1.02, or 1.78 per cent, to $58.35 per barrel by 6.38pm UAE time while WTI futures climbed 95 cents, or nearly 2 per cent to $49.47 per barrel, supported by optimism about US-China talks and Opec-led supply cuts also tightened markets.

In addition to trade talks, markets were also closely reading statement from the US Federal Reserve about interest rates and performance of the global economy.

Hussein Sayed, chief market strategist at FXTM, noted that the recent volatility in equity markets seems to have forced Fed Chair Jerome Powell to change his tone, sounding more dovish by indicating that the Fed may pause its balance sheet shrinkage if it’s necessary.

“The US and China are unlikely to come up with a full solution on trade today (Tuesday), neither in the near future. Small baby steps towards a resolution are all what’s needed to support investors’ confidence, and that’s what markets are hoping for,” said Sayed.

Isaam Kassabieh, senior financial analyst at Menacorp, said it is important to highlight that equity markets have been responding to a number of key factors that remain unchanged tilldate. As of this year’s beginning, the US market has managed to push higher following the Fed’s statement on potentially easing up on rate hikes which had put capital markets under a significant amount of pressure last year as interest rates took the dollar higher while gold and equity markets suffered losses.

“Oil prices have also been an indicator especially for GCC markets and their respective federal budgets. This January data could reveal a better managed production which is already pushing oil higher,” he said, adding that in Europe, things are quite bumpy and have focused on the Brexit along with a retreating euro as the US dollar strengthened and some European nations expressed concerns regarding the union.

“The US-China trade talks are essential for global trade as having these super powers in argument can create all sorts of chaos. Investors feel unsafe when large super powers are ready to get down and dirty by imposing tariffs and several trade barriers. As seen in 2018, president Trump was quite aggressive at that front and stirred up several debates with Canada, Mexico and others,” Kassabieh added.

He stressed that the global economy needs the US and China to get along otherwise currencies will fluctuate and in plain terms, money will be lost and industrial sectors relying on cross country production, manufacturing, sales will be materially affected. James Hughes, chief market analyst at Axitrader, said there’s also optimism over progress being seen in the US-China trade talks which are ongoing in Beijing right now, with the involvement of President Xi’s most senior aide helping lend a degree of support.

“While we don’t expect a full resolution in trade tension between China and the US in the foreseeable future, small steps in progress are likely to be taken favourably by investors,” said Tai Hui, chief market strategist for Asia-Pacific at JP Morgan Asset Management.

“The latest positive signals from the Trump administration of prospects of reaching some form of agreement and (top Xi aide) Vice Premier Liu He attending the negotiations should continue to cheer the market in the near term.”

The UAE and GCC markets bucked the trend as profit-taking set in following consistent gains over the last few days.

The Dubai stock market reversed course to slide 0.2 per cent on Tuesday as its property shares fell after rising for three straight sessions. Dubai’s largest listed developer Emaar Properties dipped 1.3 per cent, while its unit Emaar Development lost 2.8 per cent. In Abu Dhabi, the index was down 0.2 per cent, with Aldar Properties losing 1.9 per cent and Dana Gas sliding 1 per cent.

While we don’t expect a full resolution in trade tension between China and the US in the foreseeable future, small steps in progress are likely to be taken favourably by investors

Tai Hui, chief market strategist for Asia Pacific at JP Morgan Asset Management.