Yields on Treasuries rose the most since January after as a gauge of U.S. factories topped estimates in March. Stocks rolled into a second straight rally Monday, as signs of revived China growth tripped strong gains across global markets.
The Dow Jones Industrial Average rose 329.74 points to 26,258.42, led by gains in United Technologies, Caterpillar and J.P. Morgan Chase. Monday’s session also marked the Dow’s first close above 26,000 since Feb. 26. ahead of meetings between U.S. and Chinese officials in Washington, D.C., this week to settle a trade war.
The U.S. and China recently concluded their latest round of trade talks. U.S. officials last week said China had made proposals on a number of issues, including forced technology transfers, that go further than previous commitments.
A delegation headed by Vice Premier Liu for the Chinese Government said to be going to Washington this week for another round of talks.
Peter Cardillo, chief market economist at Spartan Capital Securities in New York said:
“The prospect of the trade war ending in the very near term is giving a boost to investor confidence, and in turn, we’re closing the quarter with some pretty good gains.”
U.S. Treasury Secretary Steven Mnuchin tweeted Friday that he concluded “constructive” trade talks in Beijing, and China agreed on Sunday to extend its policy of suspending retaliatory tariffs on U.S. autos and car parts beginning on Monday.
.@USTradeRep and I concluded constructive trade talks in Beijing. I look forward to welcoming China’s Vice Premier Liu He to continue these important discussions in Washington next week. #USEmbassyChina pic.twitter.com/ikfcDZ10IL
— Steven Mnuchin (@stevenmnuchin1) March 29, 2019
Analysts Cautious – Not All Risks Have Been Resolved
However, analysts cautioned that China survey data in March might only reflect a normal post-Chinese New Year recovery. Still, a stronger than expected U.S. factory survey added to the sense the global economy is coming through the soft patch. The Institute for Supply Management manufacturing index climbed to 55.3, bouncing a bit more than expected after hitting a two-year low of 54.2 in February.
Colin Cieszynski, chief market strategist at SIA Wealth Management wrote:
“World markets are rallying on the first trading day of a new week, month, and quarter, propelled upward by positive readings on the world economy. China-sensitive markets have been leading the charge with Shanghai soaring…”
Adrian Zuercher, head of APAC asset allocation at UBS Global Wealth Management’s Chief Investment Office warned:
“But these positive developments mentioned above do not mean all risks have been resolved. A US-China trade deal has not yet been finalized and could still falte. China’s government stimulus, while supportive, won’t be of the magnitude of 2009 or 2015. The China earnings downgrade cycle, while slowing, is not yet complete.”
Asian equities rose broadly on the data, with the Shanghai Composite surging 2.6 percent. Japan’s Nikkei 225 and South Korea’s Kospi indexes both rose more than 1 percent overnight. European stocks also climbed. The Stoxx 600 index closed 1.2 percent higher.
China’s official Purchasing Managers Index rebounded strongly in March, too, rising to a six-month high of 50.5 from 49.2 in February. That is well above the forecasts of many economists and an unexpected return to the expansion zone above 50.
Connor Campbell, financial analyst with Spreadex wrote:
“Ignoring some ropy retail sales data, the Dow Jones joined its European peers in a hopeful, sunny start to the second quarter. Driven by the better than forecast Chinese manufacturing PMIs from overnight, alongside the lingering optimism surrounding the trade talks that are set to continue in Washington this week, the Dow jumped more than 200 points as April got underway…to its best price in close to 5 months.”
Chetan Ahya from Morgan Stanley thinks that China’s outlook is critical to the prospects and magnitude of a global recovery, as the country has been the key source of global demand weakness over the past three quarters.
Ahya said that he believes that China’s policymakers would do whatever it takes to ensure labor market stability, and sees grounds for optimism from the country’s announced stimulus of about $250 billion–$120 billion of which is direct infrastructure spending. But Ahya also worries that private sentiment might not fully recover, and therefore could hold back tax cuts from turning into higher spending.
Monday’s gains came after the S&P 500 notched last week its best start to a year since 1998 and its strongest quarterly performance since 2009. The broad index gained 13.1 percent in the first quarter, led by the technology sector.