Trade Truce Prompts Relief Rally for Stocks, Oil, Yuan -- Update

By Shen Hong in Shanghai and Steven Russolillo in Hong Kong

Global stocks and oil rallied while U.S. Treasury yields rose Monday after Beijing and Washington agreed to get trade talks back on track, lifting investor confidence.

Traders and analysts called the moves a relief rally, and cautioned that frictions around commerce between the world's two largest economies were likely to be long-lasting. A better economic outlook with less trade-driven uncertainty could also mean hoped-for interest-rate cuts won't be realized.

Technology stocks drove the rise in European markets, with STMicroelectronics NV up 5.9%. That helped lift the Stoxx Europe 600 by 0.8%, while Germany's DAX index was up 1.2%.

U.S. chip makers also benefited in premarket trading after specific concessions were given to U.S. companies that trade with Huawei Technologies Co., the Chinese telecommunications company at the center of the dispute over technology and security between the two countries. Qualcomm Inc. and Broadcom Inc. were both up about 5% before U.S. markets opened.

That helped U.S. futures broadly, with the S&P 500 and the Dow Jones Industrial Average both up by more than 1%. Changes in equity futures don't necessarily predict moves after the opening bell.

In China, the benchmark Shanghai Composite Index gained 2.2% on the diminished tensions between the U.S. and China, despite a set of disappointing readings for Chinese economic activity. Weekend data showed factory activity in China contracted for the second straight month in June.

Michael Kelly, global head of multiasset at PineBridge Investments, said the outcome of the weekend's meeting of global leaders was "a modest favorable surprise for markets." However, issues about intellectual property were very unlikely to be solved in the coming talks, he added.

Others were similarly cautious. "We appear to have arrived at almost exactly the minimum positive outcome to justify financial markets' positive sentiment," said Andrew Jackson, head of fixed income at Hermes Investment Management.

Japan's Nikkei 225 Index rose 2.1%. Shares in London were also higher, with the FTSE 100 rising 1.1%.

It wasn't just the trade talks that advanced in the meeting of global leaders in Japan this weekend. Russia and Saudi Arabia brokered a deal on cuts to oil production, helping to send Brent crude futures up 2.8% Monday. The U.S. and Turkey also began to smooth over their differences regarding the latter's move to purchase a Russian missile defense system: That helped the Turkish lira rise 1.5% against the dollar.

Haven assets, which tend to rally in times of stress, retreated. Gold fell 1.4%, the Japanese yen weakened slightly against the dollar and 10-year U.S. Treasurys fell in price. That lifted yields, which move inversely to prices, to 2.017% from 1.998%.

The mood wasn't strictly bullish however, as the U.S. dollar, which often weakens when investors get more positive on the global economy, was stronger against a host of currencies. The WSJ dollar index was 0.3% higher.

Yields on major European sovereign bonds slipped slightly after government heads failed to reach an agreement on top jobs in the European Union, including new presidents for the European Commission and the European Central Bank. The 10-year German bund was at minus 0.334%, a fraction below Friday's close.

Joe Wallace in London contributed to this article.

Write to Shen Hong at hong.shen@wsj.com and Steven Russolillo at steven.russolillo@wsj.com

(END) Dow Jones Newswires

July 01, 2019 06:21 ET (10:21 GMT)

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