Commodities stocks drove gains in Australia, as the country’s benchmark index generally kept pace with the bounce in Asia Pacific today following cooling trade tensions between the U.S. and China. The S&P/ASX 200 finished up 1.8% at 5770.4, the biggest jump in 2 years. The energy sector advanced 4.6%, also the most since late 2016, as oil prices surged. The materials sector added 3% on strength in base metals. Financials lagged behind with a 0.8% rise.
Stocks, oil and emerging-market currencies rose intraday as the U.S. and China’s trade detente spurred optimism that tensions between the two countries would ease heading into the new year. The Dow Jones Industrial Average soared more than 400 points out of the opening gate before paring gains, trading up 253 points, or 1%, at 25792. Oil prices bounced off the lows they hit last week, while the Chinese yuan jumped against the U.S. dollar. The flurry of buying started after President Trump and Chinese President Xi Jinping reached a deal Saturday to temporarily spare Beijing from tariffs that were planned to go into effect at the start of 2019. Investors received more good news early Monday when Mr. Trump said in a tweet that China had agreed to cut tariffs on American-made cars. The developments, coming after a rough stretch for markets around the world, helped investors put aside some of the fears that they had been grappling with heading into the weekend’s Group of 20 summit. Yet underneath the broad market rally, some conflicting signals emerged–pointing to continued unease among investors. Bond yields, which typically rise with stocks when investors are optimistic about growth, instead retreated further Monday. That pushed down the spread between 2- and 10-year Treasury yields to around 17 basis points–the narrowest gap since 2007, and a sign that many are pricing in slower growth ahead. Other assets that tend to retreat when investors are feeling confident rallied, with gold prices posting their biggest one-day gain in a month.
IRON ORE: 64.18 + 1.28 (December contract)
Oil prices climbed after Russia said it would join Saudi Arabia in cutting crude output and the U.S. and China reached a truce over their trade dispute. Light, sweet crude for January delivery rose 4% to $52.95 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, was up 3.75% at $61.69. The price rises came on the heels of a bearish two months for the oil market that saw both crude benchmarks fall more than 30% since reaching four-year highs at the start of October, amid signs of a burgeoning supply glut and softer demand.
The dollar fell against a broad range of currencies intraday, as investors warmed up to riskier plays amid a truce in the trade spat between the U.S. and China. The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, was recently down 0.2% at 90.28. Investors betting that the U.S. economy will be less damaged than others by an intensifying trade conflict have sought refuge in the dollar over the past few months, pushing up the currency at the expense of its peers. Saturday’s agreement between the U.S. and China, which offers Beijing a reprieve from a planned increase in tariffs scheduled for Jan. 1, alleviated some of those concerns and drew investors out of the dollar and into other currencies. The Australian dollar, which fell as the trade war heated up in recent months, was up 1% against its U.S. counterpart at $0.7362. China is the top consumer for Australia’s commodity exports. The euro was up 0.2% at $1.1340. In emerging markets, the dollar was down 1% against the Mexican peso and fell 1.2% against the South African rand. A nearly 4% surge in oil prices Monday helped boost the Russian ruble and the currencies of other commodity-exporting nations.
The Stoxx Europe 600 closed up 1% at 361.18 after a 90-day trade “truce” was agreed between the U.S. and China at the weekend’s G-20 summit, boosting world markets. Miners are among the leading gainers as metal prices rise, while auto stocks rise after China agreed to cut tariffs on American cars. Copper miner Antofagasta rises 7.9%, while French auto parts supplier Valeo jumps 8.0% and Daimler rises 4.5%. Germany’s DAX jumps 1.9%, helped by automaker gains, France’s CAC 40 rises 1.0% and the U.K.’s FTSE 100 ends up 1.2%. Italy’s FTSE MIB jumps 2.3% and Spain’s IBEX 35 rises 1.1%.
President Trump and Chinese President Xi Jinping approved a deal on Saturday at the Group of 20 meeting in Argentina. It offers Beijing a reprieve from a planned increase in tariffs, scheduled for Jan. 1, on $200 billion in Chinese goods exports to the U.S. Tariffs were scheduled to rise to 25% from 10%. In an early-morning tweet on Monday, Mr. Trump said China had agreed to cut tariffs on American cars from currently 40%. The trade detente comes as stock markets have stabilized in recent days after a bruising autumn but remain well below the highs they hit earlier in the year. Trade frictions, falling oil prices and worries about slowing global growth all curbed risk appetite among investors. Japan’s Nikkei Stock Average rose 1%, China’s Shanghai Composite gained 2.6% and South Korea’s Kospi stock indexes gained 1.7%. Strategists at Morgan Stanley raised their forecasts for gains next year in the MSCI China and Hang Seng indexes, suggesting their clients take an overweight allocation relative to other emerging-market stocks. But others said while the potential for a three-month time out is welcome news for investors, the short-term truce means broader differences between the two countries haven’t been resolved.