Stock markets rally on trade war hopes, possibility of stimulus

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  • Trump and Xi Jinping set to meet at G20
  • European STOXX 600 sees its biggest rise since January
  • S&P 500, MSCI Emerging Markets Index and MSCI Asia Pacific Index all up

Stock markets in the United States reached all-time highs on Tuesday amid renewed hopes that the US-China trade war can be defused. The optimism was further boosted by the European Central Bank signalling that it is prepared to reduce interest rates if needed. Oil and treasuries surged.

The European STOXX 600 traded 1.7% up, marking the largest increase since January. The S&P 500 surged by around 1.4% before receding slightly. There was also a 1.5% increase in the MSCI Emerging Markets Index, while the MSCI Asia Pacific Index strengthened by 0.6%.

After a long period of widespread concerns about the trade war, US President Trump’s tweet that he and Chinese President Xi Jinping will meet at the G20 summit next week created widespread euphoria in the markets. The mood was, however, later tempered when news emerged that the Trump administration is considering demoting Jerome Powell, the Chairman of the Federal Reserve, in February.

US Bank Wealth Management Senior Investment Strategist Rob Haworth said that markets have been sceptical about the chances of a meeting between Trump and Xi Jinping taking place. He added: “This pivot to an attempt to get a deal done is certainly a lot of what’s driving the market.”

ECB President Mario Draghi committed the bank to more economic stimulus measures if necessary. Central banks in Russia, Australia, Chile, and India have recently relaxed their policies, and the Reserve Bank of Australia announced that a further easing was very likely yesterday.

At today’s Fed meeting, members are widely expected to adopt a more dovish stance. The yield on 10-year Treasury Notes was close to 2% at one point, and similar yields dropped deeper into negative territory in Germany. 

The oil price reached a five-month high after the ECB’s comments, further boosted by OPEC countries and their allies getting closer to a meeting where they are likely to announce supply cuts.