Investors to stay hopeful as US-China tensions ebb

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NEW YORK/ BEIKING/DUBAI

Bets on riskier assets will tick higher this week after China and the United States agreed on an initial trade agreement, but investors are seeking more details on the deal.

Markets ended higher last week, with Wall Street gains led by Nasdaq and S&P, both of which rose 1 per cent, as 18 months of strained US-China trade relations, which dented global economic growth, showed signs of thawing.

UK’s blue-chip FTSE index too ended up 1 per cent. Britain’s general election delivered a major victory for Prime Minister Boris Johnson’s Conservative party, which boosted prospects of a Brexit deal by January-end. Also, the US Federal Reserve signalled there wouldn’t be any policy changes for at least a year, which boosted growth prospects of the world’s top economy.

The markets got all they wanted last week, said Vijay Valecha, Chief Investment Officer at Century Financial. Risk assets like equities and commodities should continue their bullish trend.

Going forward, investors are expected to reassess their portfolios on the back of positive developments in the key events to accordingly position themselves for 2020, said Iyad Abu Hweij, managing director at Allied Investment Partners PJSC, adding that the trading activity might be subdued in the next two weeks due to the upcoming holiday season.

The so-called ‘phase-one’ trade deal included some tariff relief, more agricultural purchases and basic changes to intellectual property and technology issues. President Donald Trump said the next round of tariffs on Chinese goods, set to take effect on Sunday, was cancelled.

China-US trade talks have moved a step forward, said Hu Xijin. But how to define this step, and what real significance does it have, the answers lie in joint efforts of China and the US.

There is still some uncertainty regarding the status of this agreement, as it appears once again that some technical and legal details are still in flux, Goldman’s chief economist Jan Hatzius said.

The US said it will maintain 25 per cent tariffs on about $250 billion of Chinese imports while reducing tariffs on $120 billion in products to 7.5 per cent. The rollback in duties is “smaller than expected”, Hatzius added.

I doubt we have seen the last of trade-related volatility during US-China trade negotiations, said Tom Aspray, a market strategist and trader. While still short on details, many analysts said the deal is positive for stocks as it could boost business confidence and that should spill over to more investment spending and higher corporate profits.

White House economic adviser Larry Kudlow on Friday said the deal should lift business confidence, but to wait-and-watch whether “the Chinese stay with their word.” Monday should be the first full day of trading after the deal was revealed.

Global financiers will also eye an array of economic data, the main ones being US manufacturing gauge and GDP data.

Investors will get a first read on manufacturing in the world’s biggest economy with Manufacturing PMI and Services PMI data slated for released on Monday, a figure expected to indicate how much the US-China trade war has taken a toll on the sector. Also, the US GDP report on Friday will be key.

Also, various central banks setting monetary policy including the Bank of England, Bank of Japan and Bank Indonesia. It will be interesting to watch the tone of BoE following emergence of clarity on the Brexit front, said Aditya Pugalia, Director of Financial Markets Research at Emirates NBD.

Investors in the regional markets will continue to keep an eye on Saudi Aramco’s first few days of trading after recording a historic debut on Wednesday.

For the regional markets, trading activity will be supported by trends in global markets coupled with continued interest from international investors in Saudi Aramco, Abu Hweij added

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