Stocks, oil and dollar rise as trade war put 'on hold'

LONDON - 21 May 2018: Stocks, oil prices and the dollar were on the rise on Monday after the U.S.-China trade war was declared “on hold” while in Europe, Italy’s borrowing costs climbed and the Milan bourse fell as two anti-establishment parties got closer to power.

European stocks opened higher with the pan-European STOXX 600 up 0.3 percent, while U.S. S&P mini futures ESc1 rose 0.5 percent following a positive session in Asia led by strong gains in greater China.

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

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

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

Barbier de la Serre cautioned, however, that given the lack of details available about the agreement between the U.S. and China, it was too early to call it a definitive turning point.

He added that 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, U.S. bond prices were under pressure, keeping their yields not far from last week’s peaks with the 10-year Treasuries yield at 3.067 percent, US10YT=RR near a seven-year high of 3.128 percent hit on Friday.

In the currency market, higher U.S. yields helped to strengthen the dollar about 0.40 percent against a basket of currencies while the euro dipped 0.44 percent to $1.1723 EUR=.

The common currency was also under pressure as Italy’s far-right League and the 5-Star Movement agreed on a candidate to lead their planned coalition government and implement spending plans which some investors believe threaten the sustainability of the country’s debt pile.

Italy’s 10-year bond yield rose to 2.28 percent, their highest level since July 2017, pushing the gap with the benchmark German Bund to 1.73 percent.

The Milan bourse also suffered, down 1.1 percent with while the rest of Europe’s trading centers were un positive territory.

Oil prices held firm near 3-1/2-year highs also on easing trade tensions. Brent crude futures LCOc1 were at $78.97 per barrel, up 0.6 percent.

The market is also keeping an eye on Venezuela, where President Nicolas Maduro faces fresh international censure after his re-election in a vote foes denounced as a farce, cementing autocracy in the crisis-stricken OPEC nation.

Oil prices have been supported by plummeting Venezuelan production, in addition to a solid global demand and supply concerns stemming from tensions in the Middle East.