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Wall St continues US-China trade war truce rally

Market rise particularly pronounced in technology and automotive stocks

Wall Street has continued the global rally sparked by the trade war truce between China and the US.

Mon Dec 3 2018 - 16:18

A global stock rally reached Wall Street on Monday, as investors breathed a sigh of relief that Washington and Beijing had refrained from escalating their trade war at the G20 talks.

The market rise was particularly pronounced in technology and automotive stocks, which had been beaten down for months amid fears that US-China brinkmanship over tariffs would smother already faltering global growth.

In New York, the S&P 500 rose 1.4 per cent, with the Nasdaq Composite up 1.9 per cent. The rally came after similar gains across European bourses.

Gain

The Philadelphia Semiconductor Sector index, tracking US chipmakers, rose by over 3 per cent, setting it on course for its biggest single-session gain since mid-November.

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Carmakers also stood out after President Donald Trump suggested on Twitter on Monday morning that China had agreed to lower tariffs on auto imports, although Beijing has not confirmed the measure.

Shares in major US auto companies rose, with Ford’s stock up over 3 per cent and GM up just over 4 per cent. German carmakers made with gains of between 3 per cent and 5 per cent across the sector.

There were strong gains across Asian equities indices, particularly in China, where stocks have been the hardest hit by trade jitters. The CSI 300 index of major stocks in Shenzhen and Shanghai closed up 2.8 per cent. In Hong Kong, the Hang Seng index added 2.6 per cent higher.

Tokyo’s Topix added 1.3 per cent.

Although investors were heartened by Mr Trump’s agreement with Xi Jinping, his Chinese counterpart, not to impose higher tariffs on Chinese imports for 90 days, there was also concern that the truce only delayed the day of reckoning.

In addition, although both sides held off on raising tariffs, other details of the Buenos Aires G20 agreement remained unclear.

It was enough, however, to bring technology stocks into the rally. Apple rose 2.4 per cent, with Amazon up almost 5 per cent.

European technology stocks were led by big chipmakers Siltronic, up 8 per cent and STMicro, up almost 7 per cent.

“While longer term implications remain uncertain - for example the threat of further US tariffs on China remain if the 90 day negotiation period is unsuccessful - the market had been pricing in excessive pessimism in recent periods,” said Karan Talwar, a senior investment specialist for emerging markets debt at BNP Paribas Asset Management.

Deal

Pressure had been building on Mr Xi and his economic team to strike even a short-term deal with the Trump administration, with Beijing perceiving the pause as giving it breathing space.

China reported its slowest quarterly growth figure in almost a decade in October and economists expect that trend to continue in the coming years. Tariffs have hurt Chinese manufacturing exports, which still drive economic momentum.

Signs of even brief relief for China helped tighten emerging markets debt spreads, while the US dollar softened against the renminbi and other currencies.

The onshore Chinese renminbi exchange rate, which moves within a trading band of 2 per cent either side of a daily midpoint set by the People’s Bank of China, was up 0.6 per cent at Rmb6.9148 per dollar. The offshore rate was 0.6 per cent higher at Rmb6.9066.

The dollar eased back, with the index tracking it down 0.3 per cent to 97 points, trimming its gain for 2018 to just over 5 per cent.

Nicholas Chui, investment director for China equities at Aberdeen Standard Investments, said the pause in tough trade talk was “a good first step”.

But some analysts said the deep-seated political mistrust between the two countries and conflicts over global strategic ambitions would hinder a longer term trade deal.

“Narrow agreements and modest concessions in their ongoing trade dispute will not bridge the wide gulf between their respective economic, political and strategic interests,” Atsi Sheth, a managing director for credit strategy at Moody’s, wrote in a note to investors on Monday.

– Copyright The Financial Times Limited 2018

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