Monday December 3rd

3-12-2018

Dow set to surge more than 400 points after Trump and Xi agree to pause the US-China trade war

U.S. stock index futures surged after U.S. President Donald Trumpand Chinese President Xi Jinping agreed to a 90-day ceasefire in the trade war that has weighed heavily on global stock markets for most of 2018. Futures on the Dow Jones Industrial Average indicated an open of about 434 points as of 8:19 a.m. ET Monday. Big multinationals like Caterpillar and General Motors were set to lead the gains. Meanwhile, S&P 500 futures jumped 1.6 percent, while futures on the Nasdaq-100, home of many technology companies that sell to China, climbed 2.4 percent. Futures on oil and copper jumped on hopes a possible new China-U.S. trade agreement would boost global economic growth. The two leaders, who met for dinner on Saturday at the G-20 summit in Argentina, agreed to hold off on additional tariffs on each other's goods at the start of the new year to allow for talks to continue. The U.S. agreed to leave tariffs on more than $200 billion worth of Chinese products at 10 percent. If after 90 days the two countries are unable to reach an agreement, that rate will be raised to 25 percent, according to the White House. Trade negotiations will address forced technology transfer and intellectual property. "The explicit delay in tariffs is on the positive end of expectations," said Helen Qiao, China and Asia economist with Bank of America Lynch, in a note to clients. "In contrast to the fear — especially in Asia — that the hawks in US administration would make impossible demands, evidence of President Trump working towards a trade deal with China has emerged." Shares of General Motors jumped 4 percent in premarket trading and Ford and Tesla added 3 percent apiece after President Trump tweeted that China agreed to cut tariffs on U.S. cars sold into China. Caterpillar and Boeing each jumped more than 3 percent in premarket trading. Chip stocks which have operations in China and a large amount of their sales in the country climbed with Micron and Nvidia each adding more than 5 percent in premarket trading. 

'Long way to go'

China agreed in Argentina to purchase a "substantial" but not-yet-determined amount of agricultural, energy, industrial and other U.S. products to reduce the trade balance between the two, according to the White House. China has put tariffs on $110 billion in U.S. goods. "Obviously there is a long way to go here, but the pattern of previous [Trump] deals is playing out," Qiao added. The Dow rallied more than 5 percent last week in anticipation of a trade truce over the weekend between Xi and Trump. Shares of Caterpillar and Boeing, two companies with a lot riding on free trade with China, led the gains into the weekend. Treasury Secretary Steven Mnuchin told CNBC's "Squawk Box" on Monday he is hopeful the two nations can turn discussions between Trump and Xi into a concrete trade agreement. The S&P 500 jumped 4.9 percent last week and is now up 3 percent for 2018. Fear of a full-blown trade war between the two countries helped send the benchmark into correction territory and into the red for the year last month. "This is all constructive news for markets, however the overarching concerns in the US-China relationship remain, and thus should imply caution for markets past the short-term," wrote Sacha Tihanyi, deputy head of emerging markets for TD Securities, in a note. Some of the bigger, structural "issues are not ones that we believe can be easily tackled in a 90-day period." The mainland Chinese markets, closely watched as a result of Beijing's ongoing trade spat with Washington, saw strong gains on the day. The Shanghai composite gained 2.57 percent to close at around 2,654.80 while the Shenzhen composite advanced 3.275 percent to end the trading day at about 1,381.55. Meanwhile, Hong Kong's Hang Seng index also jumped 2.5 percent as of the final hour of trade. Japan's Nikkei 225 rose 1 percent to close at 22,574.76 while the Topix index advanced 1.3 percent to end the trading day at 1,689.05. In South Korea, the Kospi gained 1.67 percent to close at 2,131.93. Oil prices jumped by more than 5 percent on Monday after the United States and China agreed to a 90-day truce in a trade dispute, and ahead of a meeting this week of the producer club OPEC that is expected to cut supply. U.S. light crude oil rose $2.92 a barrel to a high of $53.85, up 5.7 percent, before easing to around $53.00 by 0930 GMT. Brent cruderose 5.3 percent or $3.14 to a high of $62.60 and was last trading around $61.60. Gold prices hit a more than three-week high on Monday on a weaker dollar, as a trade ceasefire between the United States and China revived investor demand for riskier assets. Washington and Beijing agreed to halt additional tariffs in a deal that keeps their trade war from escalating as the two sides try again to bridge their differences with fresh talks aimed at reaching an agreement within 90 days. Spot gold climbed about 0.7 percent to $1,230.78 per ounce at 0725 GMT, having touched its highest level since Nov. 7 at $1,231.34 earlier in the session. U.S. gold futures were up 0.8 percent at $1,235.2 per ounce.