Stock Market Surges After Trump and Xi Pause Trade War

U.S. stock market futures surged after President Donald Trump and 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, CNBC reported.

Futures on the Dow Jones Industrial Average jumped 497 points as of 04:15 a.m. ET Monday. The advance implied a 514 point gain for the Dow at Monday’s open.

Meanwhile, S&P 500 futures had an implied positive open of 52.5 points, while futures on the Nasdaq-100, home of many technology companies that sell to China, was seen more than 180 points higher.

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, CNBC added.

“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 U.S. administration would make impossible demands, evidence of President Trump working towards a trade deal with China has emerged.”

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, CNBC noted.

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.”

On the data front, investors are likely to watch out for a final reading of manufacturing PMI data for November at around 9:45 a.m. Construction spending figures for October and light vehicle sales data for November are expected to follow at 10 a.m.

On the earnings front, Coupa Software, Mesa Air and Smartsheet are all expected to publish their latest quarterly earnings results shortly after the closing bell.

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