Wall Street rallies sharply, with Dow Jones Industrial Average adding more than 300 points

Global stock markets rallied on Monday after the US and China agreed a 90-day truce in their trade war at a weekend meeting of the G20 nations in Argentina.

In reprieve for financial markets, the development came after a two-and-a-half-hour dinner meeting between Donald Trump and Xi Jinping in Buenos Aires, following months of escalating tensions around trade and other issues.

Wall Street rallied sharply in New York after opening for trading on Monday morning, before paring some of its earlier gains in the afternoon. The Dow Jones Industrial Average had risen by almost 300 points by the end of the trading session, led by lmanufacturing companies such as Boeing and Caterpillar.

The FTSE 100 index in London closed up more than 1%, while Germany’s Dax jumped 2.3%, France’s CAC gained 1%, Spain’s Ibex rose 1.1% and Italy’s FTSE MIB gained 2.3%.

The gains followed an earlier rally in Asia, on the Chinese and Hong Kong markets as well as for Australia’s benchmark ASX index and the Tokyo stock exchange.

Markets were cheered by news that Washington had deferred its plan to raise the tariff on $200bn (£156bn) of Chinese imports from 10% to 25%, for 90 days, to allow more time for negotiations. The tariffs were scheduled to take effect on 1 January.

In return, China agreed to purchase a “very substantial” amount of US goods, including farm, energy and industrial products. This would help narrow the large trade gap between the two countries. Trump declared that China would also “reduce and remove” tariffs below the 40% level that Beijing is currently charging on US cars.

The two sides also agreed to begin discussions on how to resolve other issues of concern, including intellectual property protection, non-tariff trade barriers and cyber theft.

Neil Wilson, the chief market analyst at Markets.com, said this could spark a pre-Christmas rally through December. “Some may be concerned that there was no official word from China in relation to auto tariffs and that the two sides are saying different things about the meeting,” he said.

The White House warned the existing 10% tariffs on $200bn of Chinese goods would be lifted to 25% if no deal was reached within 90 days, once again setting the clock ticking for a potential standoff at the end of March 2019.

Analysts cautioned that the trade deal may have only bought some time for more wrangling over the deeply divisive trade and policy differences, and said China’s economy would continue to cool because of weakening domestic demand.

“This is a relief rally,” said Paul Kitney, the chief equity strategist at Daiwa Capital Markets in Hong Kong. The agreement “is not a ceasefire, it’s just a de-escalation,” he said. “The existing tariffs are still having a negative impact on the Chinese economy; they haven’t gone away.”

His comments were borne out by figures released on Monday showing that China’s factory activity grew slightly in November, although new export orders extended their decline in a further blow to the sector already hurt by trade frictions.

Chinese state media cautiously welcomed the trade war truce. However, in an editorial, the official China Daily warned that while the new “consensus” was a welcome development and gave both sides “breathing space” to resolve their differences, there was no “magic wand” that would allow the grievances to disappear immediately.

“Given the complexity of interactions between the two economies, the rest of the world will still be holding its collective breath,” it said.

The Global Times, a widely read Chinese tabloid, published by the ruling Communist party’s official People’s Daily, warned people had to have realistic expectations.

“The Chinese public needs to keep in mind that China-US trade negotiations fluctuate. China’s reform and opening-up’s broad perspective recognises that the rest of the world does things differently,” it said in its editorial.

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