Oil prices rose and stocks rallied worldwide on Thursday after China said it had agreed with the United States to cancel tariffs in phases, a key consideration in reaching a deal to end a trade war that has crimped economic growth and roiled markets.
Wall Street’s three main stock indexes hit record highs and a gauge of worldwide equity performance surged to a 21-month peak, with a pan-European index at its highest since July 2015 after regional shares rose for a fifth straight session.
Canada’s main stock index scaled six-week highs on Thursday, led by energy shares.
The Toronto Stock Exchange’s S&P/TSX composite index was up 60.11 points, or 0.36 per cent, at 16,805.75.
The energy sector climbed 4.2 per cent to its highest since Oct. 1 as crude prices rose.
Canadian Natural Resources Ltd. rose 8.3 per cent, while Crescent Point Energy Corp. and Arc Resources Ltd. were up 5.8 per cent and 5.6 per cent, respectively.
The materials sector, which includes precious and base metals miners and fertilizer companies, lost 1.4 per cent as gold futures fell.
Leading the index were Stantec Inc., up 15.8 per cent and TransAlta Corp., up 10.4 per cent.
Lagging shares were Eldorado Gold Corp., down 15.3 per cent, Kinross Gold Corp., down 13.9 per cent, and Home Capital Group Inc., lower by 7.4 per cent.
The U.S. dollar gained after comments from a Chinese commerce ministry spokesman about the terms of a potential trade deal prompted investors to dump perceived safe havens such as the Japanese yen, the Swiss franc, bonds and gold.
No timetable was indicated, but a “phase one” deal is widely expected to include a U.S. pledge to scrap tariffs scheduled for Dec. 15 on about $156 billion worth of Chinese imports, including cellphones, laptop computers and toys.
The news from China was positive, but in a slowing economy with operating earnings trending lower year over year, “the fundamental justification for this market increase is pretty weak,” said David Kelly, chief global strategist at JPMorgan Funds in New York.
Investors have few options outside of equities, with the return in money markets and long-term government debt below the rate of inflation, Kelly said. The economy is generating plenty of wealth but it is all going to the stock market, he said.
“The real driver (of the market rally) is that investors in the United State and around the world have got little alternatives available to them because of the actions of the central banks,” Kelly said, “so they’re funneling money into stocks.”
MSCI’s gauge of stocks across the globe gained 0.32 per cent, while the pan-European STOXX 600 index closed up 0.37 per cent. Trade-sensitive German shares rose 0.8 per cent to close at their highest since February 2018.
Asia had been quiet overnight, with the China news arriving just before European markets opened. Automakers and miners were among Europe’s top gainers.
The prospect of a recession diminishes if some tariffs are removed, said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “So that’s positive for stocks.”
On Wall Street, the Dow Jones Industrial Average rose 182.44 points, or 0.66 per cent, to 27,675, the S&P 500 gained 8.42 points, or 0.27 per cent, to 3,085.2 and the Nasdaq Composite added 23.89 points, or 0.28 per cent, to 8,434.52.
Oil rose above $62 a barrel on Thursday after China hinted at progress towards a trade deal with the United States, raising hopes for an end to a long dispute that has weighed on economic growth and demand for fuel.
China and the United States have agreed in the past two weeks to cancel tariffs in different phases, the Chinese commerce ministry said on Thursday without giving a timeline.
The trade dispute has prompted analysts to lower forecasts for oil demand and raised concerns that a supply glut could develop in 2020. Oil fell on Wednesday, partly because of worries that a U.S.-China trade deal might be delayed.
“Today we start with a different set of headlines that they came to some agreement on the framework,” said Olivier Jakob, oil analyst at Petromatrix. “That is definitely what is supporting prices.”
Brent crude, the global benchmark, rose 55 cents, or 0.9 per cent, to settle at $62.29 a barrel, while U.S. West Texas Intermediate (WTI) crude climbed 80 cents, or 1.4 per cent, to $57.15.
The bigger rise in WTI cut Brent’s premium over the U.S. benchmark to its smallest since mid September.
Beijing’s comments boosted market sentiment, which had also been ruffled by Wednesday’s U.S. government supply report showing crude inventories rose last week by 7.9 million barrels, much more than expected by analysts.
Brent has rallied almost 16 per cent in 2019, supported by a deal between the Organization of the Petroleum Exporting Countries and allies such as Russia to limit supplies until March next year. The producers meet on Dec. 5-6 in Vienna to review the policy.
The U.S. dollar rose to near three-month highs versus the yen on the trade news, paring losses earlier in the session, while Australia’s China-sensitive dollar hit a near four-month high.
The dollar index rose 0.19 per cent, with the euro down 0.16 per cent to $1.1047. The yen weakened 0.29 per cent versus the greenback at 109.31 per dollar, while the dollar gained against the Swiss currency, trading up 0.29 per cent at 0.9953 franc.
U.S. Treasury yields rose to eight-week highs.
The benchmark 10-year U.S Treasury note fell 34/32 in price to push its yield up to 1.9277 per cent.
U.S. gold futures settled down 1.8 per cent at $1,466.40 an ounce.
Copper got its customary lift from the China optimism as the country is the biggest buyer of the metal.
“Global markets in general are looking toward where trade goes,” said Justin Lederer, an interest rates strategist at Cantor Fitzgerald in New York. “The market is being dictated by headlines and it’s risk on, risk off.”
Reuters