Stocks rise as investors cheer preliminary U.S.-China trade deal

[December 16, 2019]  By Ritvik Carvalho

LONDON (Reuters) - World stock markets rose on Monday, trading a notch below a record high hit last week on the back of a preliminary trade deal agreed between the United States and China.

European shares built on the previous week's gains at the open. In early deals, the pan-European STOXX 600 index was up by 1% and hit a record high. Germany's DAX rose 0.5%.

Britain's FTSE 100 index was up 1.14%, moving in tandem with the pound which rose 0.4%.

U.S. stock futures also pointed to stronger gains to start the week, with the S&P 500 e-minis up 0.3%.

U.S. Trade Representative Robert Lighthizer said on Sunday a deal was "totally done", notwithstanding some needed revisions, and would nearly double U.S. exports to China over the next two years.

The "phase one" agreement suspended a threatened round of U.S. tariffs on a $160 billion list of Chinese imports that was scheduled to take effect on Sunday. The United States also agreed to halve the tariff rate, to 7.5%, on $120 billion worth of Chinese goods.

The 17-month-old trade dispute between the world's two largest economies has roiled financial markets and taken a toll on world economic growth.

German private sector activity shrank for the fourth month running in December as a downturn in manufacturing offset services sector growth in Europe's largest economy, a survey showed, although it was taken before news of the trade deal.

French business grew at a steady pace in December despite a nationwide strike against pension reform, although activity in the manufacturing sector came unexpectedly close to stagnating.

Positive sentiment helped push MSCI's All Country World Index up 0.15%. The index, which tracks stocks across 47 countries, hit an all-time high on Friday when the trade deal was agreed.

"We may have reached the point of 'peak tariffs' and this deal could be the start of a series of phased rollbacks, which could unlock further upside for equity markets, driven by an improvement in business confidence and a recovery in investment," said Mark Haefele, chief investment officer, UBS Global Wealth Management in a note to clients.

Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan to its highest level since April 18. It was last up 0.13%.

Australia's S&P/ASX 200 led the way as it jumped 1.63%, while shares in Taiwan added 0.22%.

Japan's Nikkei 225 succumbed to some profit-taking, falling 0.29% after surging 2.55% to a 14-month closing high on Friday.

Ryan Felsman, senior economist at CommSec in Sydney, said the trade deal and the receding risk of a disorderly Brexit after the British election produced a strong Conservative majority provided support for sentiment in Australia.

Traders look at financial information on computer screens on the IG Index trading floor in London, Britain February 6, 2018. REUTERS/Simon Dawson

A lower-than-expected Australian budget surplus due to a sluggish economy has also "built expectations by markets for further easing from the Reserve Bank (of Australia)," he said.

Chinese investors initially had a more tepid reaction to the trade news, with the blue-chip CSI300 index struggling to rise further after trade hopes fanned a near 2% rise on Friday.

But after a lackluster morning session, the CSI300 index turned higher in the afternoon and was last up 0.3%, helped by data showing the country's industrial output growth and retail sales jumped more than expected in November.

Felsman at CommSec said investors wanted more details and the reduction in U.S. tariffs may have disappointed some looking for more aggressive action.

"Certainly there were expectations perhaps that the rollback would be more significant than just 50%," he said.

U.S. shares had struck a cautious note on Friday, paring initial gains to end barely higher as weary investors awaited signs of a concrete deal.

However, the news of a deal was still enough to send the S&P 500 to a record closing high of 3,168.8, up 0.01%. The Nasdaq Composite added 0.2% to end at 8,734.88, also a record, and the Dow Jones Industrial Average rose 0.01% to 28,135.38.

U.S. Treasury yields moved higher on Monday, reflecting a more positive mood. Benchmark 10-year Treasury notes rose to 1.8452% compared with their U.S. close of 1.821% on Friday, and the two-year yield touched 1.6304% compared with a U.S. close of 1.604%.

The dollar was slightly higher against the yen at 109.45 and the euro was up 0.13% at $1.1135.

The dollar index, which tracks the greenback against a basket of six major rivals, was down 0.17% at 97.006.

Oil prices, which had risen on Friday following the deal, climbed further on Monday. Brent crude rose 0.1% to $65.28 per barrel, and U.S. West Texas Intermediate crude was down 0.05% at $60.11 per barrel.

Spot gold prices were down 0.06% at $1,474.64 per ounce.

(Reporting by Ritvik Carvalho; additional reporting by Andrew Galbraith in Shanghai; Editing by Angus MacSwan)

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