Source : THE AGE NEWS
By Stan Choe
US stocks are leaping Monday after China and the United States announced a 90-day truce in their trade war. Each of the world’s two largest economies agreed to take down temporarily most of its tariffs against the other, which economists had warned could start a recession and create shortages on US store shelves.
The S&P 500 was up 3.1 per cent in afternoon trading and back within 5 per cent of its all-time high set in February. It’s been roaring higher since falling nearly 20 per cent below the mark last month on hopes that President Donald Trump will lower his tariffs after reaching trade deals with other countries. The index at the heart of many 401(k) accounts is back above where it was on April 2, Trump’s “Liberation Day,” when he announced stiff worldwide tariffs that ignited worries about a potentially self-inflicted recession.
US stocks soared on the news of a 90-day truce in the trade war.Credit: Bloomberg
The Dow Jones Industrial Average was up 1079 points, or 2.6 per cent, and the Nasdaq composite was 4.2 per cent higher. The Australian sharemarket is set to rise, with futures at 4.58am AEST pointing to a rise of 77 points, or 0.9 per cent at the open. The ASX was flat on Monday.
It wasn’t just Wall Street stocks rising following what one analyst called a “best-case scenario” for US-China tariff talks, which reduced tariffs by more than what many investors expected.
Crude oil prices climbed 2 per cent because a global economy less weakened by tariffs will likely be hungrier for fuel. The value of the US dollar strengthened against everything from the euro to the Japanese yen to the Swiss franc. And Treasury yields rallied on expectations that the Federal Reserve won’t have to cut interest rates so deeply this year in order to protect the economy from the damage of tariffs.
Gold’s price fell as investors felt less need to buy something safe.
The move announced Monday could by itself add 0.4 percentage points to the US economy’s growth this year, according to Jonathan Pingle, US chief economist at UBS. Every bit counts when the US economy shrank at a 0.3 per cent annual rate in the first three months of the year.
The 90-day reprieve comes at a vital time for the economy, allowing retailers and suppliers to “ensure that shelves are stocked for the all important back-to-school and holiday shopping seasons,” said Carol Schleif, chief market strategist at BMO Private Wealth.
The United States said in a joint statement that it will cut tariffs on Chinese goods to 30 per cent from as high as 145 per cent. China, meanwhile, said its tariffs on US goods will fall to 10 per cent from 125 per cent. The 90-day pause is to give time for more talks following the weekend’s negotiations in Geneva, Switzerland, which the US side said yielded “substantial progress.”
Of course, conditions could change quickly again, as Wall Street has seen all too often in Trump’s on-again-off-again rollout of tariffs. Big challenges still remain in the negotiations between China and the United States, and there is “no reason to believe that this will be anything other than a slow process,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute.
Xi Jinping and Donald Trump. The United States said in a joint statement that it will cut tariffs on Chinese goods to 30 per cent from as high as 145 per cent. China, meanwhile, said its tariffs on US goods will fall to 10 per cent from 125 per cent.
The US-China pause followed a deal the United States announced last week with the United Kingdom that will bring down tariffs on many UK imports to 10 per cent, but one that will still require weeks to finalise all the details.
Economic reports scheduled to be released later this week, including on inflation and sentiment among US consumers, could also show how much damage the US economy has already taken because of uncertainty about tariffs. But the mood was nevertheless ebullient across Wall Street on Monday, and gains were widespread.
Stocks of smaller companies, whose livelihoods can depend more on the strength of the US economy than their bigger and more insulated rivals, rallied. The smaller stocks in the Russell 2000 index jumped 3.6 per cent.
Apparel companies were also strong. Lululemon leaped 7.6 per cent, for example. More than a quarter of its fabric came from mainland China last fiscal year, and a reduction in tariffs would mean a less-tough decision on whether to pass along increases to costs to customers or to eat them itself through reduced profits. Nike rose 7 per cent.
Travel companies jumped on hopes that lower tariffs would encourage more customers to fly and feel comfortable enough to spend on trips. Carnival rose 9.9 per cent, and Delta Air Lines climbed 5.6 per cent.
Retailers like Best Buy and Amazon jumped because much of what they sell comes from China and elsewhere in Asia. Both rose at least 5.5 per cent.
In stock markets abroad, indexes rose across most of Europe and Asia, though often by less than the US market.
India’s Sensex shot up 3.7 per cent after India and Pakistan agreed to a truce after talks to defuse their most serious military confrontation in decades. The two armies have exchanged gunfire, artillery strikes, missiles and drones that killed dozens of people.
Pakistan’s KSE 100 jumped more than 9 per cent, and trading was halted for one hour following a spike driven by the ceasefire and an International Monetary Fund decision Friday to disburse about $1 billion of a bailout package for its battered economy.
In the bond market, the yield on the 10-year Treasury jumped to 4.45 per cent from 4.37 per cent late Friday.
The two-year Treasury yield, which more closely tracks expectations for what the Fed will do with interest rates, jumped even more. It rose to 4.00 per cent from 3.88 per cent as traders ratcheted back expectations for how many cuts to interest rates the Fed may deliver this year.
Many traders are now betting on just two cuts this year, according to data from CME Group.
AP
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.
