Wall St. is bullish on Trump trade truce

Dow’s 288-point rise leads mar­ket rally

USA TODAY International Edition - - MONEY - Adam Shell

Stocks kicked off the week with a rally, boosted by Pres­i­dent Don­ald Trump’s trade truce with China and a de-es­ca­la­tion of ten­sions that have been weigh­ing on mar­kets for months.

The Dow Jones in­dus­trial av­er­age closed up 288 points, or 1.1 per­cent higher, at 25,826.

In­vestors got as good an out­come as they could have ex­pected from this week­end’s meet­ing be­tween Trump and Chi­nese coun­ter­part Xi Jin­ping. The U.S. backed off on its threats to boost the level of tar­iffs al­ready in place on Chi­na­made goods from 10 to 25 per­cent on Jan. 1. Trump also held off on ini­ti­at­ing fresh tar­iffs on an­other $267 bil­lion in Chi­nese goods dur­ing a 90-day ceasefire agree­ment set to go into ef­fect at the start of 2019. Bei­jing agreed to make a “very sub­stan­tial” pur­chase of many U.S. goods, in­clud­ing agri­cul­ture prod­ucts.

The cease-fire in the trade spat is seen as “al­le­vi­at­ing a ma­jor over­hang” for finan­cial mar­kets, although a “per­ma­nent truce” has yet to be reached, Ju­lian Emanuel, an eq­uity strate­gist at BTIG, a global finan­cial ser­vices firm with offices in New York, noted in a re­port.

“Ne­go­ti­a­tions over those 90 days will no doubt be rocky, but this is the all-clear sig­nal that no­body is go­ing to walk off a cliff,” noted Don­ald Luskin, chief in­vest­ment officer at re­search firm TrendMacro.

Stocks have been very volatile since the Stan­dard & Poor’s 500 stock in­dex hit its high for the year Sept. 20. The broad mar­ket in­dex is now 4.8 per­cent off its record clos­ing high.

Here are three rea­sons why Wall Street is view­ing the 90day ne­go­ti­a­tion pe­riod in a pos­i­tive light:

❚ Good sig­nal for econ­omy:

Fears of a global slow­down due to slow­ing sales, higher prices and prod­uct sup­ply chain dis­rup­tions caused by tar­iffs has been a top worry for mar­kets since the tiff be­tween the U.S. and China emerged early this year. The hope is the 90-day cooling-off pe­riod will lead to fairer trade terms, lower tar­iffs or per­haps the com­plete elim­i­na­tion of these trade levies, paving the way for fewer ob­sta­cles in the world econ­omy.

“The truce ... has gone some way in calm­ing in­vestor fears over the state of global growth,” Dean Pop­plewell, vice pres­i­dent of mar­ket anal­y­sis at cur­rency trading firm Oanda, said via email.

❚ Bol­sters out­look for U.S.

sales to China: Trade ten­sions and im­port levies have been a neg­a­tive for big U.S. com­pa­nies that do a lot of busi­ness in China, such as heavy equip­ment maker Cater­pil­lar and air­plane pro­ducer Boe­ing.

China’s prom­ise to buy more goods from U.S. com­pa­nies, in­clud­ing in­dus­trial and en­er­gyre­lated prod­ucts, as well as to open their mar­kets to for­eign­ers, is seen boost­ing the sales and profits of com­pa­nies that

get a siz­able chunk of their busi­ness from China.

Cater­pil­lar shares ral­lied 2.4 per­cent and Boe­ing’s stock rose nearly 4 per­cent on Mon­day fol­low­ing the week­end truce.

Trump’s tweet late Sun­day say­ing China will re­move or re­duce the cur­rent 40 per­cent tar­iff on U.S.-built au­tos sold in China also pro­vided a lift to U.S. au­tomak­ers in Mon­day trading. Shares of Ford and Gen­eral Mo­tors were up 2.1 and 1.3 per­cent, re­spec­tively. ❚ Pos­i­tive step for tech

com­pa­nies: U.S. tech com­pa­nies, many of which as­sem­ble their high-tech com­po­nents and gad­gets in China, will get a re­prieve.

Among the big­gest beneficia­ries, he notes, is Ap­ple, which builds its iPhones in China, and semi­con­duc­tor com­pa­nies that make their com­puter chips there.

Most im­por­tant for Ap­ple is that specific new tar­iffs as high as 25 per­cent tar­get­ing its iPhones and lap­tops are “now off the ta­ble,” Ives says. “That would have been a tough gut punch to ab­sorb” for Ap­ple.

Ap­ple shares closed 3.6 per­cent higher.

JUSTIN LANE/EPA-EFE

The thaw in U.S.-China trade re­la­tions has boosted Wall Street in­vestors’ hopes for an even­tual deal.

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