Canadian Manufacturing

Stock markets rebound on hope of renewed China U.S. trade talks

But it remains to be seen is if China will still travel to the U.S. next month to resume formal talks next month

August 27, 2019  The Canadian Press

TORONTO – North American stock markets partially rebounded from Friday’s selloff on talk of renewed trade negotiations following tariff tit-for-tat between the U.S. and China.

The rally started after President Donald Trump claimed China was willing to reopen trade talks. It continued even after China’s foreign ministry said it didn’t know what Trump was talking about.

“I would say it is all about hope,” said Allan Small, senior investment adviser at HollisWealth, noting he doesn’t believe either country wants tariffs to increase as of Sunday’s deadline.

Markets sank Friday after Trump reacted to China’s threat of tariff hikes on US$75 billion of American products by ordering U.S. companies to look at leaving China. He then announced plans after markets closed to add five per cent to tariffs on US$550 billion worth of imports on Sept. 1 and Oct. 1.

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What remains to be seen is if China will still travel to the U.S. next month to resume formal talks, Small said.

He added that Trump frequently responds to market selloffs by making positive comments a few days later that are well-received by investors.

“I think overall there’s a ton of confusion, which is why the markets behave the way they do whenever there’s confusion based on the headlines. The computer programs go wild and that’s why markets fall so quickly.”

The S&P/TSX composite index closed up 61.21 points at 16,098.79 after losing almost 216 points on Friday.

In New York, the Dow Jones industrial average was up 269.93 points at 25,898.83. The S&P 500 index was up 31.27 points at 2,878.38, while the Nasdaq composite was up 101.97 points at 7,853.74.

Officials from the world’s two largest economies have to move quickly to prevent planned tariff increases on Sunday, but Small doubts that a complete deal can be reached by then.

“But right now there is a little glimmer of hope and I think that’s why the markets are moving as they are.”

Nine of the 11 major sectors of the TSX rose in the broad-based rally, led by consumer discretionary, technology, consumer staples and financials.

Telecommunications and materials were the lone losing sectors. Materials fell slightly as shares of First Quantum Minerals Ltd. and Yamana Gold Inc. lost 2.85 and 2.07 per cent respectively.

The December gold contract was down 40 cents at US$1,537.20 an ounce while the September copper contract was up 1.35 cents at US$2.54 a pound.

The energy sector gained 0.22 per cent with Encana Corp. climbing two per cent despite a dip in crude oil prices.

The October crude contract was down 53 cents at US$53.64 per barrel and the October natural gas contract was up 7.7 cents at US$2.23 per mmBTU.

The decrease flowed from concerns that a surprise invitation for Iran’s foreign minister to the sidelines of the G7 summit could lead to presidential talks that would end the U.S.-led ban on oil Iranian exports.

“We already have this oversupply. If Iran comes back on line could that oversupply be even greater,” Small said of the concerns.

The Canadian dollar traded for an average of 75.31 cents US, compared with an average of 75.13 cents US on Friday.

A few days of positive comments this week could prompt further increases in stock markets to make up most, if not all, of the losses, as was the case when the Dow lost 800 points less than two weeks ago, added Small.

“Cross your fingers, hold your breath. I’m sure it’s going to be a bumpy ride over the next little while.”