Oil prices rose and a gauge of global equity markets hit a new high on Tuesday as investors awaited the signing of a China-U.S. trade deal they hope will spur world economic growth, after the economy in 2019 saw its weakest year since the financial crisis.
Gold prices slid as the planned signing Wednesday of the Phase 1 trade deal dampened both the appeal of safe-haven bullion and the Japanese yen, which dropped to eight-month lows.
MSCI’s all-country world index and shares on Wall Street set intra-day highs before backing off a bit as investors said the long-awaited trade deal was priced into the market. Stocks in Canada and Australia also surged to records.
Stocks on Wall Street turned lower after Bloomberg reported that existing U.S. tariffs on $360 billion of Chinese imports will likely stay in place past the U.S. presidential elections in November as Washington reviews compliance with the trade pact.
Investors fear the global economy may not turn up enough to lift corporate earnings and share prices if tariffs remain in place for most of this year, said Jim Paulsen, chief investment strategist at the Leuthold Group in Minneapolis.
“People thought the tariffs would come off, the arguing would quit and manufacturing would restart across the globe,” Paulsen said.
The Trump administration apparently would like to retain leverage over China to enforce the trade pact, he said, while noting that retaining the tariffs is just one factor affecting world growth, he said.
“But certainly it’s worth a trading headline in the afternoon,” Paulsen said.
Details are slowly emerging about the deal. China has pledged to buy almost $80 billion of additional manufactured goods from the United States over the next two years as part of a trade war truce, a source told Reuters on Monday. China would also buy over $50 billion more in energy supplies and boost purchases of U.S. services by about $35 billion over the same two-year period, the source said.
Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, said reports of additional purchases “was incrementally positive.”
“The fact that the China thing is not getting worse and we have an agreement is lessening one of the things that could go wrong in 2020,” Tuz said.
In Toronto, the S&P/TSX composite index was up 59.48 points, or 0.34 per cent, at 17,352.90
Technology stocks fell 0.4 per cent from a record peak touched on Monday, with online services provider Shopify Inc being the biggest percentage loser in the sector.
Health care stocks rose 1.9 per cent, despite an 8.6-per-cent decline in Aphria Inc. Rival Aurora Cannabis Inc. sat 5 per cent higher, while Hexo Corp. gained 5.1 per cent.
Energy stocks were up 0.3 per cent, while the materials sector gained 1.1 per cent.
MSCI’s gauge of stocks across the globe shed 0.02 per cent, while the pan-European STOXX 600 index rose 0.29 per cent.
On Wall Street, the Dow Jones Industrial Average rose 32.15 points, or 0.11 per cent, to 28,939.2, the S&P 500 lost 5.04 points, or 0.15 per cent, to 3,283.09 and the Nasdaq Composite dropped 22.60 points, or 0.24 per cent, to 9,251.33.
Overnight in Asia, Japan’s Nikkei added 0.7 per cent to hit its highest level in a month. Australian shares rose by the same margin to close at a record.
Hong Kong’s Hang Seng and Shanghai blue chips hit multi-month peaks before running out of steam.
China’s yuan was slightly weaker after earlier hitting a high last seen in July. The U.S. Treasury Department on Monday reversed its designation of China as a currency manipulator in what is seen as a conciliatory gesture before the trade deal is signed.
The dollar index rose 0.03 per cent, with the euro down 0.06 per cent to $1.1126. The yen weakened 0.02 per cent versus the greenback to 109.97 per dollar.
Global oil benchmark Brent crude rose as the trade deal marks a major step in ending a dispute that has cut global growth and dented crude demand.
The trade dispute had a tangible impact on global oil demand last year, said Tamas Varga, an analyst at broker PVM. Varga pointed to 2019 demand growth of 890,000 barrels per day, compared with initial forecasts of 1.5 million barrels per day.
Brent crude gained 29 cents to settle at $64.49 a barrel and West Texas Intermediate crude futures rose 15 cents to settle at $58.23 a barrel.
U.S. consumer prices rose slightly in December even as households paid more for healthcare, and monthly underlying inflation slowed, supporting the Federal Reserve’s desire to keep interest rates unchanged at least through this year.
The weak inflation report from the Labor Department on Tuesday came on the heels of data last week showing a moderation in job growth in December. Economists said these developments were flagging a sharp slowdown in domestic demand.
Benchmark 10-year notes last rose 9/32 in price to yield 1.8161 per cent.
U.S. gold futures settled down 0.4 per cent at $1,544.60 an ounce.