Stock markets leap as US and China pause trade war
US-China talks have yielded some progress in the trade war, and stock markets have surged in response.
Stocks surge as US-China pause their trade war
European markets have witnessed an impressive surge to start the week following news that the US and China have decided to put their trade war on hold for 90 days.
After discussions in Geneva, the US will cut its tariffs on China to 30% from 145%, and China will reduce its levies to 10% from 125%. In addition, both sides will continue their discussions as they aim towards a full trade deal.
Stock markets have rallied hard following the news, with the FTSE 100 feeling the benefit thanks to its mining and bank stocks. The news is being viewed as a positive, since it signals that there is more room for negotiation, while the lower tariff levels should help trade between these two global giants to recover in the short term.
FTSE 100 sees strong gains
Among the big winners today have been global mining stocks, including Glencore, Anglo American and Rio Tinto, which have rebounded on hopes that the outlook for the global economy, and thus demand for raw materials, has strengthened. Also making headway today are Asia-focused banks Standard Chartered and HSBC, bolstered by expectations that the region’s economy will perform better than previously feared.
Notable losers today have been pharmaceutical stocks around the world, and on the FTSE 100 this has seen GlaxoSmithKline (GSK) and AstraZeneca slump. The latter is the third largest stock in the index, taking 19 points off the FTSE 100’s gain for the day.
Where do markets go from here?
Clearly, the talks between the US and China are a positive for markets, at least in the short-term. It shows that both sides are aware of the need to repair their relationship, and avoid further damage from the imposition of such huge tariffs.
But even at the pause levels of 10% and 30%, these tariffs are still much higher than anything imagined by investors just a few months ago. It is not quite six weeks since these tariffs were introduced - the impact has yet to really appear in both economic data and company earnings. The full impact will only become clear with time.
Stock markets have rebounded massively from their April lows. Are they still pricing in enough bad news, or have investors become too optimistic, too quickly?
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