Global Stocks, S&P Futures Surge On Fresh Trade War De-Escalation Hopes

After several days of precipitous market drops, and following yesterday's dramatic Apple-led intraday rebound, the biggest since February, S&P futures and European stock markets are sharply higher even as Asian shares slipped, as investor sentiment was boosted by fresh prospects of a thaw in the trade war following overnight news that Chinese Vice Premier Liu He discussed a timetable for trade talks with Treasury Secretary Steven Mnuchin, coupled with a report this morning from Bloomberg that China is moving toward cutting its trade-war tariffs on imported U.S.-made cars, a step which had previously been brandished by President Donald Trump as a concession won during trade talks in Argentina.

 

The big news overnight was a report according to China's Mofcom which said Vice Premier Liu He spoke by phone with US Treasury Secretary Mnuchin and Trade Representative Lighthizer in which both sides exchanged views on implementing consensus reached by their leaders, while they also exchanged views on pushing forward timetable and roadmap for next stage of trade discussions. The news - taken as a positive sign for trade war de-escalation - sent S&P futures as much as 20 points higher, shrugging off losses in the Asian benchmark and a drop in Japanese equities...

 

... while Europe's Stoxx 600 was trading at session highs, up over 1.5% as a result of a late catch up with yesterday's S&P rebound, led by THE construction, basic resources, builders and telecom sectors even with today's rebound it was still heading for its worst year since 2008.

 

European automakers also surged following the Bloomberg report that China is said to be moving on the US auto tariffs reduction that US President Trump has previously tweeted on. The proposal has been submitted for review, however, the decision has not been finalized and still could change.

 

Yet investors also have an eye on the continuing flap over Canada’s arrest of the chief financial officer of Huawei Technologies Co. And among a plethora of political risks, the U.K. is seeking reassurances from European partners over Brexit and fears linger over the possibility a French protest movement could escalate further.

After crashing on Monday to a 21 month low as Theresa May postponed a key Brexit vote in parliament, the pound staged a rally, trimming some of Monday's tumble as the UK Prime Minister tried to convince EU leaders to renegotiate the current Brexit deal.

The broader risk-on sentiment weakened the dollar weakened while Treasuries and European sovereign bonds fell.

With the market having been gripped by a growing sense of panic, some - like Nomura's Charlie McElligott - have warned that the next move could be a furious rally higher as hedge funds scramble to recover some of their YTD losses in the last few days of 2018.

“Markets are highly volatile,” said hedge-fund pioneer Paul Tudor Jones at a conference in New York. “I can easily see a situation in 2019 where all the deleveraging that we’ve experienced in the last month and a half -- really, the last four or five months -- all that deleveraging gets reinvested back into the market.”

Meanwhile in India’s assets saw a choppy session, with stocks initially roiled by a surprise resignation of the central bank governor on Monday, before posting a recovery as traders mulled the implications for Prime Minister Narendra Modi of regional election results. Emerging-market currencies and shares edged higher. Oil climbed with most metals.

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