Global Markets, US Futures Surge On Renewed Trade Hopes

In a carbon copy of yesterday's early session, global stocks and US equity futures rallied amid renewed optimism of a thawing in U.S.-China trade relations after President Trump said he would intervene in Huawei case to get a trade deal with China and was ready to meet with Xi for a second time. The question now is whether the early rally will once again fizzle as it did 24 hours ago.

The pound strengthened as traders took the news that Theresa May will face a vote of confidence from the Conservative Party she leads in stride, with sterling gaining as several ministers rushed to back her and she vowed to contest the vote “with everything I’ve got", prompting analysts to conclude she may prevail.

Global markets were solidly in the green, with Asian and European shares enjoying big gains after Trump said talks were taking place with Beijing by phone and he would not raise tariffs on Chinese imports until he was sure about a deal. Trump also said he would intervene in the Justice Department’s case against a top executive at China’s Huawei Technologies if it would serve national security interests or help close a trade deal, after a Canadian court on Tuesday granted bail to the executive in a move that could help placate Chinese officials angered by her arrest.

S&P futures were 0.7% higher in a rerun of Tuesday's morning session, buoyed by more Trump rhetoric after the president told Reuters that it would be a mistake if the Federal Reserve raises interest rates when it meets next week, as it is expected to do, continuing his criticism of the U.S. central bank. “I think that would be foolish, but what can I say?” Trump told Reuters in an interview. Trump said he needed the flexibility of lower interest rates to support the broader U.S. economy as he fights a growing trade battle against China, and potentially other countries. “You have to understand, we’re fighting some trade battles and we’re winning. But I need accommodation too,” he said.

In Asia, Japan’s Nikkei led the way in Asia with a jump of 2.2% while Shanghai blue chips rose a more modest 0.3%. London, Frankfurt, and Paris then gained between 0.4 and 0.8 percent to push Europe higher.

“We are seeing risk sentiment stabilizing a bit,” said Societe Generale strategist Alvin Tan. “Firstly we had news that China was considering reducing tariffs on US car, then the Huawei CFO was released on bail and then Trump said could he intervene in the case if it helped secure a trade deal.”

Of course, having been repeatedly disappointed before, analysts were still being careful to not get too optimistic about the prospects of a trade agreement. ING said the Huawei case made it increasingly obvious that the China-US trade war is about the exchange of technology, and there were also reports the United States would release evidence this week detailing Chinese hacking and economic espionage.

“Even if this (auto) step is taken it just removes what was a retaliatory measure to begin with,” noted ANZ economist David Plank. “Whatever the case, market price action is somewhat of a chop-fest, right now, as it swings around on each new headline."

On Tuesday, markets had also been jolted when Trump threatened to shut down the government over funding for a wall he has promised to build on the southern border with Mexico; look for more drama out of the White House.

Meanwhile, the Brexit drama may be approaching an endgame of sorts when as noted above, the pound fell to 20-month lows overnight after lawmakers in May’s Conservative party gathered enough support to trigger a no-confidence vote in her leadership. But it stabilized as some investors bet that May would win Wednesday’s vote and in the process isolate opponents in her party who want a clean, sudden break from the EU. Nevertheless, uncertainty over the secret ballot capped gains, keeping the pound only just above $1.25, having shed 1.9 percent in the previous two sessions to a trough of $1.2483.

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