Global stocks rally on hopes of a US-China trade deal
Global markets rallied earlier in the week as investors were buoyed by growing optimism that the US and China are close to a deal on trade.
Pan-European Stocks 600 It added about 0.3% on Monday morning, following earlier solid gains in Japan’s Asian markets Nikki 225 closed at 2.46% and South Korea Kospi Increasing by 2.57% per day.
US futures also took a hit before Monday’s opening bell, with Dow Jones Industrial Average futures up 0.6%, S&P 500 futures up 0.8% and Nasdaq 100 futures up 1.2%.
More than half of Europe’s sectors were negative on Monday morning, while industrials, technology and mining stocks – three industries seen as particularly sensitive to global trade tensions – were among the biggest gainers. The Stoxx Europe 600 Technology index rose 1.4%, as the Stoxx Europe 600 Basic Resources rose 0.5% and the Stoxx 600 Industrial Goods & Services index rose 0.3%.
The prospect of a trade war
Rupert Thompson, chief economist at IBOSS, said fresh trade news was the main driver for Monday’s global rally, adding it bolstered prospects for a longer-lasting ceasefire that would ease tariff hostilities.
“It’s definitely kind of a big flare-up of trade tensions again in the long grass,” Thompson told CNBC’s “Squawk Box Europe.” “Almost certainly, if this goes ahead, it means that the trade war will continue, possibly longer than the three-month period that has been the norm until now.”
He added: “Certainly, that means….the favorable tailwinds currently behind the market have given them another leg up.”
But Thompson also sounded a note of caution. He warned that underlying geopolitical tensions between the two nations remained and noted that the president’s plans for a 10% tariff on Canada — which Thompson said “came out of the blue” — showed Trump was “quite fickle” on trade.
Christian Müller-Glissmann, head of asset allocation research at Goldman Sachs, focused on broader factors when it comes to potential growth.
“I’m not sure that this deal in particular will make things happen, but the underlying assumptions for next year make things look a little more reflationary,” Mueller-Glissmann told CNBC’s “Squawk Box Europe” on Monday.
He said the bank is “moderately pro-risk”, looking for upside exposure and avoiding speculative transactions, adding that the current market environment is built around structural optimism that is partly driven by excess liquidity. He said “trapped” liquidity could boost the potential for a late-cycle acceleration, but warned that risks also remain.
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