Markets Rally on Report of Draft U.S.-China Trade Deal
China’s stock and currency markets rallied on Friday amid indications that a highly anticipated first phase of a trade deal with the U.S. could be announced imminently, diffusing tensions in a clash that has lasted more than a year.
Bloomberg reported that U.S. President Donald Trump had signed off on a deal that would roll back some of the tit-for-tat tariffs from a clash that began over a year ago. The deal would also include a halt to threatened new U.S. tariffs on Chinese goods set to take effect on Sunday.
The major Shanghai and Shenzhen stock market indexes rose 1.8% and 1.7% respectively on Friday. Hong Kong’s Hang Seng Index, which reflects China sentiment among foreign investors, rose by an even stronger 2.6%.
“On U.S.-China trade, the news is certainly a positive for markets. But to make a full assessment we need more clarity on the timing, substance, and a confirmation,” said Mark Haefele, global chief investment officer for UBS Wealth Management. “Given that the envisaged December tariffs would have been more harmful than previous ones for U.S. companies, especially IT firms that ship goods produced in China to the U.S., we would expect the U.S. market to benefit.”
Reflecting that fact, PC-maker HP Inc. rose 1.8% in Thursday trade in the U.S., while rival Dell Technologies Inc. rose by 3.8%, both outpacing a 0.73% rise in the Nasdaq composite index. Chinese exporters also did well, with Hong Kong-listed shares of smartphone-maker ZTE Corp. rising 1.8%, home appliance maker Gree Electric up 2.5% in Shenzhen, and construction machinery maker Zoomlion up 2.6% in Hong Kong.
China’s exports to the U.S. have declined for 12 straight months through November, including a 23% drop in November. That big decline led China to post an unexpected 1.1% drop in exports last month.
Word of a pending trade deal also helped to fuel a rally for China’s currency, the yuan, whose onshore rate advanced as much as 1% to 6.9570 per dollar Friday — the most since December last year and the strongest since Aug. 2 on an intraday basis.
Oil also took part in the rally, rising to its highest level in almost three months. Oil futures in New York rose by as much as 0.7% Friday after a similar climb the previous day. “While the current trade deal will most probably limit demand devastation, it might not be enough to counter an oversupplied market in early 2020,” Stephen Innes, chief Asia market strategist at AxiTrader, said in a note. That’s possibly why “we are not seeing a massive bounce in oil prices now commensurate with the frothy risk-on environment,” he said.
A number of agricultural products also rallied, including soybeans, which have been one of the biggest victims of the trade war as Chinese buying of the commodity from the U.S. plummeted at the height of tensions. Soybeans and corn were up 1.5% or more Friday on news of the partial deal. An official announcement is expected Friday Washington time, Bloomberg reported, citing people familiar with the matter.
Bloomberg contributed reporting.
Contact reporter Yang Ge (firstname.lastname@example.org; twitter: @youngchinabiz)
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