Canada’s main stock index and U.S. stocks opened higher on Monday, after a truce between the United States and China on trade tariffs boosted sentiment.
The Toronto Stock Exchange’s S&P/TSX composite index was up 176.59 points, or 1.16 per cent, at 15,374.41.
Energy stocks jumped over 4.5 per cent in early trading. Canadian Natural Resources Ltd. was up 9.7 per cent, while Cenovus Energy Inc. rose 9.5 per cent.
In New York, the Dow Jones Industrial Average rose 241.11 points, or 0.94 per cent, at the open to 25,779.57.
The S&P 500 opened higher by 30.33 points, or 1.10 per cent, at 2,790.50. The Nasdaq Composite gained 155.59 points, or 2.12 per cent, to 7,486.13 at the opening bell.
Oil prices jumped by more than 5 per cent on Monday after the United States and China agreed a 90-day truce in a trade dispute, Alberta ordered a production cut, and as exporter group OPEC looked set to reduce supply.
U.S. light crude oil rose $2.92 a barrel to a high of $53.85, up 5.7 per cent, before easing to around $53.25. Brent crude rose 5.3 per cent or $3.14 to a high of $62.60 and was last trading around $62.00, up $2.54.
“From Argentina to Alberta, the oil market news is about supply curtailments,” said Norbert Rucker, head of commodity research at Swiss bank Julius Baer. “A brightening market mood will likely extend today’s price rally in the very near term.”
China and the United States agreed during a weekend meeting in Argentina of the Group of 20 leading economies not to impose additional trade tariffs for at least 90 days while they hold talks to resolve existing disputes.
The trade war between the world’s two biggest economies has weighed heavily on global trade, sparking concerns of an economic slowdown.
Crude oil has not been included in the list of products facing import tariffs, but traders said the positive sentiment of the truce was also driving crude markets.
Oil also received support from an announcement by Alberta that it would force producers to cut output by 8.7 per cent, or 325,000 barrels per day (bpd), to deal with a pipeline bottleneck that has led to crude building up in storage.
European benchmarks rallied almost across the board. Germany’s DAX - the most sensitive to China and trade war fears - led the way with a 2.5-per-cent rise to its highest since Nov. 14.
U.S. President Donald Trump also said “China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40 per cent”. That helped boost European autos more than 4 per cent.
The trade truce was the latest “circuit breaker” needed to trigger a return to risk appetite, said Guillermo Felices, head of research and strategy in the Multi-Asset, Quantitative and Solutions team at BNP Paribas Asset Management,
“The first was markets pricing in a more dovish Fed, the second, more aggressive policy stimulus by the Chinese authorities and the third, easing trade tensions,” he said.
Felices cautioned, however, that negotiations had reached a “ceasefire” rather than lasting peace.
“China can deliver on the easy things like buying more agriculture as they need those goods, but when you go into the territory of intellectual property, and industrial and technology policy, you are clashing with China’s long-term aims,” he said.
MSCI’s all-country world index climbed 0.8 per cent in its sixth straight day of gains and hit its highest since Nov. 9. Emerging-market equities rose two percent and were set for their strongest day in a month.
Asian shares kicked off the rally, with Chinese markets rising more than 2.5 per cent and Japan’s Nikkei soaring to six-week highs.
The risk-on mood saw MSCI’s index of emerging-market currencies rise 0.7 per cent, led by China’s yuan, which saw its biggest daily gain since February 2016 .
However, the U.S. dollar started to recover after slumping as much as half a percent earlier against a basket of currencies . It was just 0.2 per cent lower, knocking the euro off the day’s highs.
Sterling, meanwhile, dropped as Brexit nerves returned. Against the dollar, the pound fell to its lowest since October at $1.2708, down nearly 0.7 per cent from the day’s highs. Against the euro, it slipped 0.3 per cent to 89.05 pence.
“Until the British parliament votes on the deal next week, we are going to see a steady drumbeat of Brexit headlines, which is going to keep the pound weak,” Danske Bank strategist Morten Helt said, referring to a Dec. 11 lawmakers’ vote on Prime Minister Theresa May’s agreement on leaving the European Union.
However, the dollar has already come under some pressure from a recent shift by the U.S. Federal Reserve to a slightly more dovish stance. Comments by Federal Reserve Chair Jerome Powell were interpreted by markets as hinting at a slower pace of rate increases.
Powell was scheduled to testify later this week to a congressional Joint Economic Committee.
The latest market rally would not bring a return to a more hawkish Fed stance, Berenberg economist Florian Hense said. “We would need to see some rebound in economic activity to lift expectations of more rate hikes,” Hense said.
U.S. Treasury yields pulled back from Friday’s over-two-month lows. Ten-year yields traded around 3.03 per cent .
Germany’s 10-year government bond, the benchmark for the euro area, initially rose four basis points to 0.347 per cent , but eased back to 0.32 per cent.
Yields on riskier southern European bonds were down across the board, though Italian bonds trimmed some gains after the European Central Bank revealed Italy’s share of ECB capital would be cut slightly.
Ten-year yields stayed close to two-month lows, however .
Reuters