Rolling coverage of the latest economic and financial news
- Introduction: Trade deal optimism lifts stocks
- FTSE 100 is rallying again
- London market gained £33bn on Friday
- End of political paralysis in UK
NEWSFLASH: European stock markets have hit an all-time high.
The STOXX 600, which tracks companies across Europe, has gained 0.5% this morning.
The US agreed to one of China’s key red lines, i.e. rolling back pre-existing tariffs. However, that reversal has been described as ‘minimal’ – 25% tariffs will be maintained on around $250 billion in goods, while only $120 billion will see the charges reduced to 7.5%.
As for Trump’s key demands, China will now reportedly purchase an extra $16 billion in agricultural goods per year, on top of the $24 billion already pencilled in, taking the total in 2020 and 2021 to at least $40 billion. The President himself said he thinks ‘they’ll hit $50 billion’, and that they’ve ‘already stepped it up’.
Mark Haefele, chief investment officer at UBS Global Wealth Management, predicts stock markets could keep rallying in the coming months.
We think it is significant that the announcement represents the first time that trade negotiations have successfully led to an actual reduction in tariffs, rather than a mere delay.
We may have reached the point of “peak tariffs” and this deal could be the start of a series of phased rollbacks, which could unlock further upside for equity markets, driven by an improvement in business confidence and a recovery in investment. Attractive valuations for stocks relative to high grade bonds should lead to outperformance over a six- to 12-month investment horizon.