World stock markets rose on Monday, trading a notch below a record high hit last week on the back of a preliminary trade deal agreed between the United States and China. European shares built on the previous week’s gains at the open. In early deals, the pan-European STOXX 600 index was up by 1 per cent and hit a record high. Germany’s DAX rose 0.5 per cent. Britain’s FTSE 100 index was up 1.14 per cent, moving in tandem with the pound which rose 0.4 per cent.
US stock futures also pointed to stronger gains to start the week, with the S&P 500 e-minis up 0.3 per cent. US Trade Representative Robert Lighthizer said on Sunday a deal was totally done, notwithstanding some needed revisions, and would nearly double US exports to China over the next two years. The phase one agreement suspended a threatened round of US tariffs on a $160 billion list of Chinese imports that was scheduled to take effect on Sunday.
The United States also agreed to halve the tariff rate, to 7.5 per cent, on $120 billion worth of Chinese goods. The 17-month-old trade dispute between the world’s two largest economies has roiled financial markets and taken a toll on world economic growth. German private sector activity shrank for the fourth month running in December as a downturn in manufacturing offset services sector growth in Europe’s largest economy, a survey showed, although it was taken before news of the trade deal.
French business grew at a steady pace in December despite a nationwide strike against pension reform, although activity in the manufacturing sector came unexpectedly close to stagnating.
Positive sentiment helped push MSCI’s All Country World Index up 0.15 per cent. The index, which tracks stocks across 47 countries, hit an all-time high on Friday when the trade deal was agreed.
We may have reached the point of ‘peak tariffs’ and this deal could be the start of a series of phased rollbacks, which could unlock further upside for equity markets, driven by an improvement in business confidence and a recovery in investment, said Mark Haefele, chief investment officer, UBS Global Wealth Management in a note to clients.
Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan to its highest level since April 18. It was last up 0.13 per cent. Australia’s S&P/ASX 200 led the way as it jumped 1.63 per cent, while shares in Taiwan added 0.22 per cent. Japan’s Nikkei 225 succumbed to some profit-taking, falling 0.29 per cent after surging 2.55 per cent to a 14-month closing high on Friday.
Ryan Felsman, senior economist at CommSec in Sydney, said the trade deal and the receding risk of a disorderly Brexit after the British election produced a strong Conservative majority provided support for sentiment in Australia. A lower-than-expected Australian budget surplus due to a sluggish economy has also built expectations by markets for further easing from the Reserve Bank (of Australia), he said.
Chinese investors initially had a more tepid reaction to the trade news, with the blue-chip CSI300 index struggling to rise further after trade hopes fanned a near 2 per cent rise on Friday.
But after a lacklustre morning session, the CSI300 index turned higher in the afternoon and was last up 0.3 per cent, helped by data showing the country’s industrial output growth and retail sales jumped more than expected in November.
Felsman at CommSec said investors wanted more details and the reduction in US tariffs may have disappointed some looking for more aggressive action. Certainly there were expectations perhaps that the rollback would be more significant than just 50 per cent, he said. US shares had struck a cautious note on Friday, paring initial gains to end barely higher as weary investors awaited signs of a concrete deal.
However, the news of a deal was still enough to send the S&P 500 to a record closing high of 3,168.8, up 0.01 per cent. The Nasdaq Composite added 0.2 per cent to end at 8,734.88, also a record, and the Dow Jones Industrial Average rose 0.01 per cent to 28,135.38.
US Treasury yields moved higher on Monday, reflecting a more positive mood. Benchmark 10-year Treasury notes rose to 1.8452 per cent compared with their US close of 1.821 per cent on Friday, and the two-year yield touched 1.6304 per cent compared with a US close of 1.604 per cent.