The meeting in Buenos Aires between US president Trump and his Chinese equivalent Xi was keenly anticipated by the markets and it didn’t fail to disappoint with large moves seen following what appears to be a significant de-escalation in trade tensions between the world’s two largest economies.
Stock markets in Asia posted sizeable gains, European bourses have got off to a bright start with green across the board while the US is called to open firmly higher in what is a pretty clear, broad based rally on improving sentiment.
The FTSE has jumped by more than 150 points with stocks that have the greatest exposure to China prominent near the top of the index as miners such as Antofagasta (LON:ANTO), Anglo American (LON:AAL) and Glencore (LON:GLEN) all surging by more than 6%.
The pound is edging lower on balance with gains only seen against the buck in the G10 space despite a better than expected data release from the manufacturing sector.
China-US declare halt to new tariffs
On the face of it, a pause for 90 days before further tariffs will be implemented unless an agreement can be reached isn’t really that positive but it does represent the first backwards step from either the US or China since their tit-for-tat trade war began in the first quarter of the year.
Investors are clearly hopefully that this marks a turning point and have rushed to buy stocks since the news broke. The White House announced that Trump has told Xi during talks in Buenos Aires that he would not boost the current tariffs on around $200b of Chinese imports to 25% from the current level of 10% as was previously planned and judging by the market reaction traders are betting that this is a significant first step in the de-escalation of these tensions.
Oil rallies strongly on 3 upbeat developments
The gains seen in the equity space are being outdone by the rally in crude markets, with both Brent and WTI gaining over 5% following a triple threat of positive news over the weekend.
While the trade truce is seen as positive on the demand side of the market the main catalyst for this move is likely due to expected supply cuts. OPEC will convene in Vienna for their bi-annual meeting later this week and the organisation is being widely tipped to announce a reduction in the current production surplus that will be supported by non-OPEC member Russia.
Furthermore, reports that Canadian province Alberta would force producers to cut output by 325k barrels per day to deal with a pipeline bottleneck that has led to crude building up in storage has raised the prospect of declines in supply from other sources, which were hitherto seen to be determined to pump at their maximum levels.
The price of crude has fallen by more than a third since October, with last month seeing the largest drop in a decade but a concerted effort by OPEC+ could well mark a turning point in the market going forward.
The final, and probably least significant factor in today’s rise is the decline in the greenback with the US dollar falling lower against nearly all of its peers barring the pound. As crude is priced in USD, depreciation of the buck translates to higher market prices for oil.
Manufacturing data does little for the pound
Despite a better than forecast reading from the manufacturing sector the pound is trading lower on the day, with traders obviously giving short shrift to economic data and focusing more on the latest Brexit developments. The November manufacturing PMI rose more than the 51.7 expected to 53.1, with the sector staging a fairly impressive recovery from last months reading of 51.1 - which was the lowest in over two years. However, up until next week’s key Brexit vote, traders are far more interested in the chances of PM May getting her deal through the Commons and, if she fails to do so what this means going forward.
The PM is coming under fire from all sides and looks unlikely to be gain the requisite support for the bill to pass, and it would not be at all surprising if we see some weakness in the pound heading into the event with the chances of a no-deal Brexit rise to their highest level yet if the proposal is rejected.