Stock Markets Respond Positively To Trade War Truce

trade war

The Australian dollar and Chinese yuan rallied against the U.S. dollar on Monday after President Donald Trump and Xi Jinping of China agreed to a 90-day truce in their trade war during the G-20 summit that took place over the weekend.

Trump said that China agreed to reduce and remove tariffs below the 40 percent level currently in place on vehicles made in the U.S after the two nations came to an agreement in Buenos Aires, Argentina.

On Sunday night, Trump took to Twitter saying, “China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%”. Neither Trump nor the Chinese government responded immediately or issued further details regarding the tweet. The two leaders agreed to halt new tariffs during talks on Saturday, after months of escalating trade tensions.

The two countries will also address issues of mutual concern and discuss moves aimed at expanding market access, protecting intellectual property, joint control of cybercrime, and avoiding compulsory technology transfers. Both parties agreed that they will endeavor to have the deal completed in the next 90 days. If they are unable to come to an agreement at the end of the set period, the 10% tariffs will be increased to 25%.

The White House released a statement saying, “President Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture.”

“Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10 percent tariffs will be raised to 25 percent.”

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China agreed to buy a very substantial, but yet to be agreed amount of industrial, agricultural, energy, and other products from the U.S. to reduce the trade imbalance between the economic giants. China said it will begin purchasing agricultural products from American farmers immediately.

The agreement between the two countries has huge potential for fair trade. Wall Street is hoping the countries will agree on as many things as possible and quickly improve Sino-U.S. cooperation.

U.S. stock market reacted positively to the trade war truce on Monday. The S&P 500 rose 0.82%, the Nasdaq gained 1.29%, while the Dow Jones Industrial Average was up 216 points, or 0.85%, to 25,755. Farm equipment and construction maker Caterpillar Inc. was among the biggest gainers on the Dow, jumping 3.2% after it was upgraded from neutral to buy by Bank of America Merrill Lynch following the trade truce.

Apple Inc. gained more than 2% as investors bet that a ceasefire in the trade disagreements between Beijing and Washington will get rid of a key tariff risk that was likely to affect the most valuable company in the world.

Stocks of U.S. automakers also edged higher on Monday with Ford Motor C. rising 2.44%. Fiat Chrysler and General Motors, gained 3.37% and 2.23%, respectively. Meanwhile, Tesla jumped 3.43%, also benefiting from the trade truce news and reports that it is expanding its electric charging routes in Canada in order to facilitate coast-to-coast travel.