Apple shares, oil price, and the euro get boost as US and China agree on trade ceasefire

Apple shares, oil price, and the euro get boost as US and China agree on trade ceasefire

Shares in Apple, the price of oil, and the euro rose in a global relief rally after US President Donald Trump and China President Xi Jinping declared a ceasefire in their $200bn (€175bn) trade war. However, analysts mulled how long the truce would last.

Apple shares, which have fallen sharply since reaching their record peak only two months ago, rose as much as 2% as investors breathed a sigh of relief that the company, which manufactures many of the parts of its iPhones in mainland China, may have escaped any escalation in the dispute.

The euro rose 0.3% against a weakened dollar on the view that there may be less need for investors to use the US currency as a haven against risk.

Meanwhile, the price of Brent crude, the global benchmark, which surged 2.5% to almost $61 a barrel, was held back by uncertainty over the plans for Opec to cut supply as Qatar left the cartel.

The debate about how long the truce will last has already started.

Andrew Hunter, US economist at Capital Markets, said Mr Trump giving his name to the truce may help boost its chances for success.

“The trade ceasefire agreed by Presidents Donald Trump and Xi Jinping bears a striking resemblance to the ill-fated deal reached back in May but, with Trump himself having personally negotiated the latest deal, this one has a much greater chance of leading to a lasting truce,” said Mr Hunter.

“The existing US tariffs on Chinese imports will remain in place for now, but the agreement of a 90-day ceasefire will delay the planned increase in the tariff rate on $200bn of those goods, from 10% to 25%, that was scheduled for January, while also averting the threat of tariffs being imposed on the remaining $260bn or so of Chinese goods.”

Analysts said they will wait to see whether, as promised, both sides will stick to agreements including for China to buy agricultural and energy products, and if Mr Trump’s tweet, saying that China will cut the level of tariffs on US cars, holds true.

Fiona Cincotta, senior market analyst at City Index, said the top four European shares indices all traded higher by between 1% and 2%, and “trade-sensitive sectors, such as metals companies and carmakers fared particularly well from the trade truce”.

Some of the euphoria for stock markets deflated during the session, however, said Chris Beauchamp, chief market analyst at online broker IG.

“Trade wars have not gone away, but most investors will be grateful that they are off the agenda for now. This at least clears the way for a strong December rally, but markets should be on their guard for any renewal of tensions later next year,” said Mr Beauchamp.

In its analysis, Capital Economics also questioned whether the positive effects of the ceasefire would be enough to offset other strong headwinds facing the US and the world economy next year.

“The impact on domestic prices of the tariffs imposed so far has been largely offset by the 10% surge in the dollar this year. Even in a worst-case scenario where all Chinese goods were eventually subject to tariffs, we suspect this would add only a few tenths of a per cent onto headline inflation. And with US exports to China worth only 0.9% of GDP, the impact of further retaliatory tariffs on the real economy would be similarly modest.

“The upshot is that, even if the latest ceasefire holds and existing tariffs between the US and China are eventually removed, we still expect economic growth to slow next year, as the boost from fiscal stimulus fades and tighter monetary policy starts to take its toll,” said Capital Market.

China has made over $1.2 trillion in additional trade commitments as part of the deal reached by Mr Trump. Mr Xi and Beijing has vowed to take immediate steps on those promises.

According to US Treasury secretary Steve Mnuchin, there was a clear shift in tone at Buenos Aires from past discussions with Chinese officials, as Mr Xi offered a commitment to open China’s markets to US companies.

“They put on the table an offer of over $1.2 trillion in additional commitments. But the details of that still need to be negotiated,” Mr Mnuchin told CNBC.

“This is the first time that we have a commitment from them that this will be a real agreement.”

US National Economic Council director Larry Kudlow said he, Mr Mnuchin, and US trade representative Robert Lighthizer had lunch with China’s vice-premier in Argentina and he told them that Beijing would move immediately on the new commitments.

“The history here with China promises is not very good. And we know that,” said Mr Kudlow.

“However, I will say this: President Xi has never been this involved. They cannot slow-walk this, stall this, meander this. Their word: ‘Immediately’.”

Mr Kudlow told reporters at the White House that Washington would like to see progress quickly on structural issues, including intellectual property theft and technology transfers.

Americans will get majority ownership in companies in China for the first time, which should help address those issues, he said on CNBC.

The US agreed not to raise tariffs further on January 1, while China agreed to buy more agricultural products from US farmers immediately.

The two sides also agreed to negotiate over the next 90 days to resolve issues of concern raised by the US, including intellectual property protection, non-tariff trade barriers, and cyber theft.

US officials will monitor Chinese progress on enforcing the commitments very closely, said Mr Kudlow.

Mr Trump has appointed Mr Lighthizer, one of the administration’s most vocal China critics, to oversee the new round of trade talks with China, according to officials.

The appointment of Mr Lighthizer may signify a harder line in talks with Beijing and marks a shift from past practices where Mr Mnuchin had a lead role.

Mr Lighthizer is an experienced trade negotiator who just completed a new agreement with Canada and Mexico.

“He’s the toughest negotiator we’ve ever at the USTR and he’s going to go chapter and verse and get tariffs down, non-tariff barriers down and end all these structural practices that prevent market access,” White House trade adviser Peter Navarro told National Public Radio.

The White House is stepping up efforts to prod other countries to build more vehicles in the US. Mr Lighthizer and other officials are set to meet with German car makers later today.

Additional reporting Reuters

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