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Hong Kong and Shanghai led a surge across global markets Monday after the United States agreed to suspend imposing tariffs on China for three months, while oil prices soared on expectations of a big production cut.
In a much-anticipated meeting between Donald Trump and Xi Jinping at the weekend, the heads of the world’s two biggest economies hammered out a deal that will see them hold off on their tit-for-tat tariffs row, which has roiled global equities for most of the year, agency reports.
The US will not raise levies on Chinese goods on January 1 while China promised to buy more from the US and enter a 90-day period of talks to bring an end to the dispute.
If the negotiations, fail tariffs will jump from 10 percent now to 25 percent. Trump hailed the meeting — held on the sidelines of the G20 in Buenos Aires — as “amazing and productive… with unlimited possibilities for both the United States and China”.
And on Sunday the US president said Beijing had agreed to cut tariffs on car imports. “China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%,” he wrote on Twitter.
News of Saturday’s deal lit a fuse under Asian markets, with Hong Kong and Shanghai each rallying 2.6 percent, while the Chinese yuan — which has tumbled this year on worries about the trade row — jumped 0.8 percent. Tokyo climbed one percent, Sydney rose 1.8 percent, Seoul put on 1.7 percent, Singapore was 2.4 percent higher and Taipei rallied 2.5 percent. There were also big gains in Bangkok, Manila and Jakarta. In early European trade London jumped 1.5 percent, Frankfurt surged 2.5 percent and Paris gained 2.2 percent.
“This is the best outcome that we had hoped for out of this meeting,” said Frances Cheung, head of Asia macro strategy at Westpac Banking Corp. However, while the early reaction was positive, observers warned there were still major issues that need to be resolved.
The “imposition of no new tariffs is not the same as retracing the existing tariffs that have come into play this year and will gradually have an impact on the US economy”, said Kerry Craig, global market strategist at JP Morgan Asset Management. “Moreover, the ideology behind the trade tensions is still about strategic positioning of the two economies, which means until issues around technology transfer and (intellectual property) are resolved, nerves will persist.
“We anticipate that things are still likely to get worse before they get better.”
And Hao Hong, a strategist with Bocom International Holdings, added: “What we have now is a truce at the best. This may produce a short-term rebound, though the resilience of the rally depends on how soon everyone will begin to see the situation through.”
The news also provided a boost to oil prices, which have been battered by concerns the trade war would hit demand for the commodity.
Adding to the buying support was President Vladimir Putin saying Saturday
that Russia and Saudi Arabia had agreed to renew a pact on production cuts.
Both main contracts climbed around five percent, which provided a boost to
regional energy firms with PetroChina up more than four percent in Hong Kong
and Woodside Petroleum up 3.5 percent in Sydney.
Traders are now looking ahead to a weekend meeting of OPEC and key non-
OPEC members, where they will make an announcement on how much they will cut
and for how long.
“It’s a huge week not only for oil markets but capital markets in
general,” said Stephen Innes, head of Asia-Pacific trade at OANDA.
“Post-G20 sentiment is a bit more positive than expected but still very
much work in progress, so perhaps the most crucial event in December next to
(Britain’s) Brexit vote could very well be the OPEC summit.”
Prices were pared slightly after Qatar announced it would be leaving OPEC
next year as it looks to concentrate on its gas production, though it would
continue to pump crude. The country contributes a fraction of the entire
output from the group.
The upbeat sentiment sent higher-yielding and emerging market currencies
higher against the dollar. The Mexican peso was 1.3 percent higher, South
Korea’s won jumped 0.9 percent, the South African rand climbed 1.2 percent
and the Australian dollar put on 0.8 percent.