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U.S.-China Trade Hopes Give Stocks a Lift

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02/12/2019 | 03:56am EDT

By Avantika Chilkoti

Global stocks ticked up Tuesday on hopes that trade tensions between the U.S. and China will cool as negotiators meet this week in Beijing.

In Europe, the Stoxx Europe 600 was up 0.6%. Asian markets were also higher, led by Japan's Nikkei, which gained 2.6%. Hong Kong's Hang Seng Index gained 0.1% and the Shanghai Stock Exchange was up 0.7%.

Futures pointed to a 0.6% opening gain for both the S&P 500 and the Dow Jones Industrial Average. Moves in futures don't necessarily reflect market moves after the opening bell.

Investor sentiment was buoyed by an agreement in principle among U.S. lawmakers late Monday, which would avoid another partial government shutdown later this week. The deal would provide $1.38 billion of funding for 55 miles of modern physical barriers along the border with Mexico, below President Trump's initial demands.

Yet many economists see trade as the main concern for the global economy.

High-level trade negotiations are taking place this week, with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin scheduled to meet China's vice premier in Beijing, spurring hopes that a deal will be reached before planned tariff increases kick in next month.

David Zahn, head of European fixed income at Franklin Templeton, points out that many investors see the trade talks as a short-term issue for markets centered around trade imbalances rather than a longer-term U.S.-China rivalry.

"This is going to be an ongoing theme for probably the next decade or more," Mr. Zahn said. "We'll get something fixed and we'll come back and we'll get another issue, so this is something that markets will learn to deal with."

The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was down marginally.

The 10-year U.S. Treasury ticked up to 2.679%, from 2.661% on Monday. Yields move inversely to prices.

In the U.K., Prime Minister Theresa May is set to speak before Parliament on Tuesday as the March deadline for the U.K. to exit from the EU nears and pressure mounts to broker a deal.

The latest data out on Monday shows the U.K. economy grew at its slowest pace in six years in 2018, expanding 1.4% year-over-year, as the protracted Brexit negotiations weigh on investment.

Daniel Vernazza, chief U.K. economist at UniCredit Bank in London, predicts the U.K. economy could pick up if Mrs. May brokers a deal palatable to Brussels and to lawmakers in Parliament, avoiding a "no-deal" outcome where the country leaves the bloc without any agreement in place.

"But any boost is likely to be small because the global economy will probably continue to slow and Brexit-related uncertainty over the U.K.'s future relationship with the EU is likely to remain for many years to come," he wrote in a recent note to clients.

This week, investors will be watching closely as the latest U.S. economic data is published, including December retail-sales figures on Thursday and inflation figures on Wednesday. Economists surveyed by The Wall Street Journal expect inflation to have pulled back on an annual basis.

Continued concerns about when the U.S. economy will slow are "overly pessimistic", according to David Slater, portfolio manager at Trium Capital, the London-based hedge fund, who sees the sharp drop in global equities in the last quarter as one possible explanation for that market gloom.

"That, as a whole, would encourage cautious sentiment," Mr. Slater said.

Elsewhere in commodities, global benchmark Brent crude oil was up 0.7% to $61.96 a barrel.

Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL -0.51% 26462.08 Delayed Quote.13.44%
HANG SENG 0.11% 29581.28 Real-time Quote.14.32%
NASDAQ 100 0.42% 7816.919048 Delayed Quote.22.98%
NASDAQ COMP. 0.21% 8118.682224 Delayed Quote.22.11%
NIKKEI 225 -0.22% 22258.73 Real-time Quote.10.92%
S&P 500 -0.04% 2926.17 Delayed Quote.16.77%
US DOLLAR INDEX 0.03% 98.2 End-of-day quote.1.57%
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