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US stocks close higher after Trump delays China tariffs

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US stocks and China’s currency rallied sharply on Tuesday after Washington announced a delay to some additional tariffs on Chinese imports, allaying concerns over a trade row that many investors feared would tip the US into recession.

The S&P 500 snapped a two-day losing streak and clawed back heavy losses from the prior day following the announcement from the Trump administration, while perceived haven assets such as US Treasuries, gold and the Japanese yen sold off. China’s offshore renminbi, which trades in financial centres outside of mainland China, rallied more than 1 per cent against the US dollar.

Washington is planning to impose an additional 10 per cent of tariffs on about $300bn of Chinese imports, but US trade representative Robert Lighthizer said tariffs will be delayed on some technological items such as cell phones, laptops and video game consoles until December 15. Others will be removed from the tariff list entirely “on health, safety, national security and other factors”.

The news came after high level telephone talks between US and Chinese officials. A further conversation in two weeks has been agreed.

The reprieve calmed Wall Street’s nerves over the trade dispute and its potential fallout on the US economy. Bank of America Merrill Lynch said in a fund manager survey that 34 per cent of investors believed a recession is likely in the next 12 months — the highest recession probability recorded since October 2011. The survey was conducted from August 2-8.

The benchmark S&P advanced 1.5 per cent on Tuesday, with technology and financial shares among the biggest winners.

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Notably, shares in Apple were up 4.4 per cent, while suppliers to the iPhone and semiconductor groups also gained. The tech-heavy Nasdaq Composite surged 2 per cent.

US Treasuries, which have rallied sharply in recent weeks on trade tensions and worries over slowing global growth, dropped in price, sending their yields higher.

The yield on the short-term US two-year bond rose 8.6 basis points to 1.666 per cent, while the 10-year yield rose 5.5 basis points to 1.6949 per cent.

Gold staged a notable reversal as news of the reprieve broke, and was recently down 0.6 per cent, having touched fresh six-year highs with a rise of 1 per cent earlier in the day. The Japanese yen fell more than 1 per cent against the US dollar as risk-off sentiment faded.

“With the tariff delay on key imports, the effect on the economy will likely be more drawn out: the rise in inflation along with the slowing in real consumer spending (and any resultant firm failures) will likely occur somewhat more slowly than we expected last week,” UBS economists wrote to clients. “Nonetheless, the Damocles sword of tariff increases in the future remains and will stoke uncertainty.”

The apparent softening of trade tensions changed the complexion of a trading day which had earlier been dominated by spiralling investor concerns including unrest in Hong Kong, market ructions in Argentina and a slowing global economy.

European shares reversed course to trade higher, with the Stoxx Europe 600 up 0.5 per cent. Germany’s trade sensitive Dax moved 0.6 per cent higher, having earlier fallen more than 1 per cent after a closely watched survey showed expectations for the German economy have fallen to their lowest level since 2011.

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Asian stocks had fallen after protesters disrupted Hong Kong’s airport in an escalation of the city’s largest political crisis since the handover from Britain to China in 1997. The Hang Seng index fell 2.1 per cent, and has lost almost a tenth of its value this month as investors have reacted to the rising tension in Asia’s key financial centre.

“These developments will increase tension with mainland China and damage the Hong Kong economy, with growing fears that the region will enter recession,” ANZ analysts said in a note.

Elsewhere in markets, Argentina’s peso fell for a second day on political fears, sliding 5 per cent to 55.65 pesos per dollar. The drop comes after the currency lost more than a fifth of its value at one stage during the previous session as the market worried over the possible return of populist policies.

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Markets Briefing is a concise look at global markets, updated throughout the trading day by Financial Times journalists in Hong Kong, New York and London. Feedback? Write in the comments below or send us an email.

Via Financial Times

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