European stocks rally on trade truce

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Kremlin.ru [CC BY 4.0 (https://creativecommons.org/licenses/by/4.0)], via Wikimedia Commons

The presidential dinner at the G20 summit in Buenos Aires this weekend between Donald Trump and China’s Xi Jinping yielded a temporary respite in the trade spat between the two countries as the US agreed to postpone the increase in tariffs on $200 billion in Chinese goods and China pledged to import more US products.

Looking at the fine print, the deal will be revisited in three months’ time when some other issues that the US and China cannot agree on will also be back on the menu. Nevertheless, the markets have wholeheartedly embraced the temporary trade peace they have been granted. The top four European indices are all trading more than 2% higher, Asian stocks closed in positive territory, oil gained almost 5% and Dow futures jumped 500 points hinting at a strong start of the day later when the US market opens. For Trump the success of the negotiations would have been overshadowed by the death of former President George Bush senior on Friday and he decided to close the markets on Wednesday for a day of mourning.

Trade-sensitive sectors, such as metals companies and car makers fared particularly well from the trade truce, helping the FTSE gain 2.11%. With Brent crude trading at over $61 again, oil majors also saw improvement in their share prices.

Qatar to leave OPEC

In contrast to crude oil, gas prices are on the slide as Qatar, the world’s largest exporter of liquid natural gas, has decided to sever ties with oil cartel OPEC from next year to focus more on gas. The Middle Eastern country surprised the market with its decision before the scheduled OPEC meeting in Vienna at the end of this week where oil producers are due to discuss production cuts to their crude oil output. However, in a signal that some major production decisions will be taken outside of OPEC, Russia and Saudi Arabia also met at the G20 and agreed to keep production at bay to help prices. No particular time frame has been outlined yet and the level of cuts has yet to be confirmed by either of the producers.