Investors get early Christmas on trade, Brexit optimism

Tokyo and Hong Kong each soared 2.6 percent, Shanghai clocked up 1.8 percent, Seoul surged 1.5 percent and Sydney rose 0.5 percent

Christmas came early yesterday as equities and the pound surged on reports China and the US had reached a trade agreement, while British Prime Minister Boris Johnson won a landslide victory that will allow him to push through Brexit.

Investors flocked back into stocks around the world on news that Donald Trump had signed off on a long-awaited pact between the world’s economic superpowers that will see the cancellation of fresh US tariffs due at the weekend and the rolling back of previous measures.

After months of high-level talks, negotiators presented the president with a deal that will see China ramp up its purchases of agricultural goods, Bloomberg News reported.
The mood was already buoyant after Trump said an agreement was close on the first part of a wider pact.
“Getting very close to a big deal with China. They want it, and so do we!” Trump tweeted earlier in the day, which helped fuel a rally on Wall Street that saw the S&P 500 and Nasdaq hit new records.

While the pact has yet to be finalised, the news will come as a massive relief to investors after weeks of toing and froing, with both sides offering sometimes positive, sometimes downbeat comments on the talks’ progress.

Trade tensions between the world’s biggest economies have been a huge drag on global growth, with most countries being sucked into the stand-off, sending some into or close to recession. “Does it mean we get a comprehensive deal in 2020? Hard to say, but it this has created the necessary Christmas cheer for a decent Santa Rally,” said Neil Wilson at Markets.com.

The trade headlines came as Johnson’s ruling Conservative party won a huge majority in a crucial general election. He now has sufficient power to finally drive his EU Brexit deal through parliament, the stuttering passage of which has caused years of uncertainty in Britain.

Commentators also suggested that his large majority meant Johnson was not beholden to the extreme anti-EU members of his party and would give him the ability to push for a softer Brexit, which would be better for the economy. 

EU Council President Charles Michel said the bloc was ready to hold trade talks with Britain.

The election news sent the pound briefly soaring to as much as US$ 1.3514 - its highest since mid-2018 - from US$ 1.3163 before the poll was released. It also rallied to 82.80 pence per euro - a level not seen since just after the Brexit referendum in 2016.

“The market is getting two Christmas presents early,” said Tai Hui at JP Morgan Asset Management. The one-two of positive news for markets sent equities surging in Asia and Europe. Tokyo and Hong Kong each soared 2.6 percent, Shanghai clocked up 1.8 percent, Seoul surged 1.5 percent and Sydney rose 0.5 percent. There were also big gains in Mumbai, Singapore, Taipei, Manila and Jakarta.

London rallied one percent, while Paris and Frankfurt both surged by even more.

The soothing of tensions and removal of some uncertainty helped higher-yielding, riskier currencies rally.

The Chinese yuan jumped one percent against the dollar, while the South Korean won and South African rand were both 1.5 percent higher.
Australia’s dollar, the Indonesian rupiah, Mexican peso and Russian ruble also saw big advances as investors grew in confidence.
“The global recovery (fear of missing out) trade of the last two months got a turbo-charged boost, naturally,” said OANDA’s Jeffrey Halley.

“Stock markets leapt to record highs on Wall Street, emerging-market and China-centric currencies have surged, as has oil. In fact, you could have bought almost anything in the last eight hours, and it would be higher now.”

However, while the mood heading into Christmas is of optimism, Hui pointed out there was still a long way to go on both issues.
“The UK government will need to finalise the details on Brexit and start a marathon of trade negotiation with the EU,” he said. “This is expected to be complicated and time-consuming, while new uncertainties could emerge for the business sector.”

And on the China-US trade deal, “our view has always been that the two sides would agree on phase one, but these represent some of the lowest-hanging fruits in the negotiation”.
“The future stages of negotiation are going to be much more challenging when it starts to involve China’s industrial policy and technological development,” he added.
HONG KONG (AFP)