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Stocks and dollar rise as US-China trade war put ‘on hold’

Stocks and the dollar rose but gave up some gains yesterday after the US-China trade war was declared “on hold”, while in Europe Italy’s borrowing costs climbed and the Milan bourse retreated as two anti-establishment parties got closer to power.

Wall Street opened higher, with US S&P mini futures up 0.6 per cent, while the pan-European STOXX 600 was up 0.3 per cent, hovering near three-month highs and London's FTSE 100 hit a new record, up 0.5 per cent following a positive session in Asia.

“There’s a ‘feel-good’ sentiment on risky assets due to the US trade announcement,” said Stephane Barbier de la Serre, a strategist at Makor Capital Markets.

US Treasury Secretary Steven Mnuchin declared the US trade war with China “on hold” following an agreement to drop their tariff threats that have roiled global markets this year.

Mr Mnuchin and US President Donald Trump’s top economic adviser, Larry Kudlow, said the agreement reached by Chinese and US negotiators on Saturday set up a framework for addressing trade imbalances in the future.

Mr Barbier de la Serre cautioned, however, that given the lack of details available about the agreement between Washington and Beijing, it was too early to call it a definitive turning point. A number of question marks, such as on the prospects for world growth, inflation and rising rates, should also keep investors on their toes.

As safe-haven demand for debt fell, US bond prices were under pressure, keeping their yields not far from last week's peaks with the 10-year Treasuries yield at 3.072 per cent, near a seven-year high of 3.128 per cent hit on Friday.

In the currency market, higher US yields helped to strengthen the dollar about 0.15 per cent against a basket of currencies while the euro dipped 0.1 per cent to $1.1762.

Italian politics contributed to the pressure on the euro as the far-right League and the 5-Star Movement agreed on a candidate to lead their planned coalition government and implement spending plans seen by some investors as threatening the sustainability of Italy’s debt pile.

“It is something that creates a lot of nervousness, but of course on the other hand one has to wait,” ECB governing council member Ewald Nowotny said.

The Milan bourse started the day sharply lower but progressively clawed back losses and limited its fall to 0.8 per cent.

Italy’s 10-year bond yield rose to nearly three per cent in early morning trade, its highest level since July 2017 but also eased back to about 2.28 per cent.

Oil prices, which had initially held firm near three-and-a-half year highs on the easing trade tensions, edged down.

Brent crude futures were at $78.18 per barrel, down 0.4 per cent.

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