Hopes rise of China-US trade deal, lifting global stock markets

President Donald Trump reacted positively after a call with Chinese President Xi Jinping and had reportedly asked officials to sketch up a new trade deal.

The US leader tweeted that he and his Chinese counterpart had discussed trade and that negotiations were “moving along nicely with meetings being scheduled at the G-20 in Argentina” later this month.

After the telephone call, Trump asked US officials to draft potential terms for a new bilateral trade deal, Bloomberg reported.

This has propelled Asian and then European stocks higher, with the Nikkei up 2.6%, the Hang Seng up 4.2% and the Shanghai Composite up 2.7%, with London's FTSE 100 up 0.6% and Germany's more export focused DAX up 1.4%.

Stock markets have suffered from the US and China’s tit-for-tat tariffs that have been going on for months since Trump first launched protectionist measures in June. The billion-dollar tariffs have already started to weaken Chinese manufacturing.

London Capital Group analyst Jasper Lawler said: “The trade war has been partly to blame for the recent equities rout, so any signs that the two powers are making progress will encourage investors to put risk back on the table and pick up stocks at bargain levels. This remains a fragile situation, but it appears to have turned a corner, providing a floor to the recent equity selloff. Whilst talks are on a positive note we don’t expect to see a repeat of those extreme bouts of selling that we saw across October.”

WHAT NEEDS TO BE AGREED

The Trump administration says that the tariffs are a means to pressure Beijing to make changes to its economic policies and prevent the country from “stealing” US intellectual property and unfairly boosting Chinese companies through aggressive industrial programs.

Nevertheless, analysts believe these changes in Chinese policy are hard to reverse overnight. Michael Every, head of Asia financial markets research at investment bank Rabobank, said he suspected Trump's upbeat comments were in fact aimed at boosting market sentiment ahead of next week's crucial midterm elections.

"This seems a perfect way to ensure equities rally into election day, put Xi into a box in terms of what is expected of him in the terms of the deal ... and then have someone to blame when the deal then falls through," Every said in an email.