Global equity markets and oil prices rose on Friday after China and the United States agreed on an initial trade deal that rolls back some U.S. tariffs in exchange for China’s increased purchase of farm goods, coming just ahead of a deadline for a new round of U.S. tariffs.
Beijing has agreed to buy $32 billion in additional agricultural goods over the next two years, U.S. officials said, from a baseline of $24 billion purchased in 2017, before the trade war started. The 17-month-old trade dispute has roiled financial markets and taken a toll on world economic growth.
U.S. President Donald Trump said he thought China would hit $50 billion in agricultural purchases.
The agreement was announced as the Democratic-controlled U.S. House of Representatives Judiciary Committee voted to charge Trump with abuse of power and obstruction during an impeachment inquiry.
MSCI’s gauge of global equities rose 0.32 per cent, while the pan-European STOXX 600 index gained 1.25 per cent, boosted by hopes of an orderly Brexit after a landslide victory for UK Prime Minister Boris Johnson in Thursday’s elections.
But stocks on Wall Street pared initial gains on the news of a preliminary U.S.-China trade deal. Given the heated nature of the trade war between the world’s two largest economies, investors were slow to fully embrace the news, as both sides have engaged in brinkmanship.
Investors are weary of the bantering rhetoric, while on the margin Johnson’s victory is bigger news than what could be viewed as trade positioning, said Jack Ablin, chief investment officer at Cresset Capital Management. “Investors at this point are tired of the talk and are looking for a hand shake,” he said.
The back and forth in trade talks between China and the United States is emblematic of a great power struggle, said James Clunie, manager of the Jupiter Absolute Return Fund.
“If there are two great countries locked in a strategic war, which is what a great power struggle is, then that is not going away, that is probably with us for a long time,” Clunie said.
Canada’s main stock index also rose on Friday.
The Toronto Stock Exchange’s S&P/TSX composite index was up 56.23 points, or 0.33 per cent, at 17,003.13.
Increasing optimism about a trade truce has fueled a rally in global equities. TSX was less than 1 per cent below the record high it hit last month.
Tech stocks rose 1.2 per cent to lead the index, while materials rose 0.9 per cent.
Leading the index were Enghouse Systems Ltd., up 20.8 per cent, Turquoise Hill Resources Ltd., up 12.6 per cent, and Power Financial Corp., higher by 10.1 per cent.
Lagging shares were Empire Company Ltd., down 3.6 per cent, First Quantum Minerals Ltd., down 3.3 per cent, and Cascades Inc., lower by 3.0 per cent.
MSCI’s gauge of global stock performance and the three main U.S. equity indexes hit record highs.
The Dow Jones Industrial Average rose 3.46 points, or 0.01 per cent, to 28,135.51, the S&P 500 gained 0.2 points, or 0.01 per cent, to 3,168.77 and the Nasdaq Composite added 17.56 points, or 0.2 per cent, to 8,734.88.
Earlier in Asia, Japan’s Nikkei climbed 2.5 per cent to a 14-month high and Shanghai blue chips advanced 2 per cent.
Sterling gained following Johnson’s win of a commanding majority in Britain’s Parliament, giving him the power to deliver a clear exist from the European Union, though trade talks are set to drag on for months, if not years.
UK shares exposed to Britain’s economy surged, with the benchmark FTSE 100 index gaining more than 2 per cent at one point as the rally offset the drag from a jump in sterling.
The pound rose to a 19-month high against the U.S. dollar and shares in Europe rose to near all-time highs as investors cheered the likelihood of an orderly Brexit. Sterling last traded at $1.3335, up 1.31 per cent.
The Canadian dollar edged lower against its U.S. counterpart on Friday but held near an earlier five-week high as the reduction of some global investment risks weighed on the greenback.
The U.S. dollar weakened against a basket of major currencies, pressured by the sapping of safe-haven demand after the announcement of an initial trade deal between the United States and China and an election victory for Britain’s Brexit-backing Conservative Party.
“I think CAD was caught in this broader U.S. dollar move,” said Simon Côté, managing director, risk management solutions at National Bank Financial. “We are at risk of seeing more dollar weakness and I just advise our clients not to be complacent.”
Historically cheap rates for the market’s pricing of expected volatility showed that investors were not prepared for a major move in the U.S. dollar, even though it was testing key support levels against a number of major currencies, including euro , sterling and the Mexican peso , Côté said.
Canadian dollar six-month volatility was trading at an annualized rate of less than 4.5 per cent, which was near a record low.
The Canadian dollar was trading 0.1 per cent lower at 1.3189 to the greenback, or 75.82 U.S. cents. The currency touched its strongest intraday level since Nov. 6 at 1.3151.
For the week, the loonie was up 0.5 per cent.
Gold prices were little changed as risk appetite was boosted from the progress in the U.S.-China trade talks, though investors remained cautious. U.S. gold futures settled up 0.6 per cent at $1,481.20 an ounce.
Oil rose on Friday to its highest in nearly three months as investors cheered progress in resolving the U.S.-China trade dispute and a decisive general election result in Britain.
Washington and Beijing announced a “Phase one” agreement that reduces some U.S. tariffs in exchange for increased Chinese purchases of American farm goods.
Brent futures, the global benchmark, gained $1.02, or 1.6 per cent, to settle at $65.22 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 89 cents, or 1.5 per cent, to $60.07.
Both contracts closed at their highest since Sept. 16, up a little over 1 per cent for the week.