North American and European stocks regained ground on Tuesday after President Donald Trump downplayed the U.S.-China trade war as “a little squabble” a day after a spike in tensions between the world’s two largest economies rattled financial markets.
Fears that the United States and China were spiraling into a fiercer, more protracted trade dispute that could derail the global economy have shaken investors in the past week. On Monday, MSCI’s gauge of stocks across the globe posted its biggest one-day decline in over five months and touched a two-month low. The MSCI index gained 0.49 per cent on Tuesday.
Trump insisted trade talks with China had not collapsed, while China’s Foreign Ministry spokesman said the two sides had agreed to continue pursuing relevant discussions. This followed Washington’s decision last week to hike its levies on $200 billion of Chinese imports to 25 per cent from 10 per cent.
On Wall Street, technology stocks led the rebound but major indexes finished below their session highs. The Dow Jones Industrial Average rose 207.06 points, or 0.82 per cent, to 25,532.05, the S&P 500 gained 22.54 points, or 0.80 per cent, to 2,834.41 and the Nasdaq Composite added 87.47 points, or 1.14 per cent, to 7,734.49.
“It’s a nice bounce-back certainly after yesterday for sure,” said Gary Bradshaw, portfolio manager of Hodges Capital Management in Dallas. “It seems like President Trump has been more jovial and more upbeat in making comments that hopefully will get this trade situation squared away. I think that’s got investors buying the dip.”
Canada’s main stock index rose on Tuesday, following a three-day slump, as upbeat comments from Washington and Beijing calmed nerves over a further escalation in their trade war, which has kept global financial markets on edge.
The Toronto Stock Exchange’s S&P/TSX Composite index was unofficially up 91.12 points, or 0.56 per cent, at 16,284.53.
Eight of the index’s 11 major sectors were higher, led by the energy and health care sectors, which climbed 2.1 per cent and 3.1 per cent, respectively.
The financials sector gained 0.5 per cent, while the industrials sector rose 0.9 per cent.
The Canadian dollar strengthened against its U.S. counterpart on Tuesday as oil prices rose and investors grew more optimistic on U.S.-China trade talks, but the currency stuck to a narrow range ahead of Canada’s inflation report on Wednesday.
Canada runs a current account deficit and exports many commodities, including oil, so its economy could be hurt by a slowdown in the global flow of capital or trade.
“I think the slight uplift in oil today has helped (the loonie),” said Amo Sahota, director at Klarity FX in San Francisco. “What I think is more significant when focusing just on the loonie is how will Canadian inflation come out tomorrow?”
Canada’s inflation report for April is due on Wednesday, which could help guide expectations for Bank of Canada interest rate policy. Money market see a nearly 40-per-cent chance of a rate cut by the end of the year.
Domestic data on Tuesday showed that home prices failed to rise for the eighth consecutive month in April.
The Canadian dollar was trading 0.1 per cent higher at 1.3466 to the greenback, or 74.26 U.S. cents. The currency, which has advanced 1.3 per cent since the start of the year, traded in a narrow range of 1.3457 to 1.3488.
The pan-European STOXX 600 index rose 1.01 per cent.
The U.S. benchmark S&P 500 recorded its biggest one-day loss since Jan 3 on Monday, after China struck back in the trade dispute by saying it would impose higher tariffs on a range of U.S. goods.
“It’s likely that it will take markets a day or two to adjust to this increased rhetoric around trade, because markets up until a week ago thought that trade had been put to bed,” said Carol Schleif, deputy chief investment officer with Abbot Downing in Minneapolis.
In another sign trade tensions are hurting the economic outlook, Germany’s ZEW institute said investors’ mood had deteriorated unexpectedly in May.
In currencies, the dollar index, which measures the greenback against a basket of currencies, rose 0.2 per cent, with the euro down 0.15 per cent to $1.1206.
The euro slid after Italy’s deputy prime minister said the country was ready to break European Union budget rules if necessary to spur employment. Italian government bond yields rose sharply.
Benchmark U.S. 10-year Treasury notes last fell 3/32 in price to yield 2.4139 per cent, from 2.405 per cent late on Monday.
Oil prices rose over 1 per cent on Tuesday after top exporter Saudi Arabia said explosive-laden drones launched by a Yemeni-armed movement aligned to Iran had attacked facilities belonging to state oil company Aramco.
That move higher comes as the market waits for a report from the American Petroleum Institute (API), an industry group, which is expected to show U.S. crude stockpiles fell by 800,000 barrels last week, their second decline in a row, according to analysts in a Reuters poll.
The poll was conducted ahead of weekly reports from API at 4:30 p.m. EDT on Tuesday and the U.S. Energy Information Administration (EIA) at 10:30 a.m. EDT on Wednesday.
Brent futures gained $1.01, or 1.4 per cent, to settle at $71.24 a barrel, while U.S. West Texas Intermediate crude gained 74 cents, or 1.2 per cent, to $61.78.
That was the highest settle for Brent since May 6 and WTI since May 8 and caused the closing premium of Brent over WTI to rise to a nine-week high.
Saudi Arabia said armed drones had struck two oil pumping stations in the kingdom on Tuesday in what it called a “cowardly” act of terrorism two days after Saudi oil tankers were sabotaged off the coast of the United Arab Emirates.