North American stock markets surged on Monday following Friday’s steep losses as reports suggested the United States and China were willing to negotiate tariffs and trade imbalances to avert a trade war.
All three major U.S. indexes posted their biggest one-day gain in two and and a half years, with the Dow Jones Industrial Average closing up 2.8 per cent or 669 points to 24,203.
The benchmark’s big gainers were banking giant Goldman Sachs and major tech firms such as Apple and Microsoft.
The broader S&P 500 index rose 2.7 per cent to 2,659, while the tech-heavy Nasdaq composite jumped 3.3 per cent to 7,221 points.
Last week was the worst week for the major U.S. stock indexes since 2016.
The White House had announced last week that it wants to impose tariffs on up to $60 billion US of Chinese goods, as payback for what the administration calls unfair trading policies, notably asking U.S. firms to hand over their technology, and not allowing them full ownership rights to Chinese subsidiaries.
Stock markets were gripped by fears of a trade war on Friday, as China openly mulled slapping import tariffs on U.S. agricultural goods. But the two sides have reportedly been talking over the weekend.
Premier Li Keqiang said Monday China would treat foreign and domestic firms equally, not force foreign firms to transfer technology and would strengthen intellectual property rights.
“Today, nothing really worsened on the trade side of things and there was a little calm over the fact that the U.S. may be negotiating with the Chinese directly on these tariffs as opposed to imposing them,” said John Zechner, chairman of investment firm J. Zechner Associates. “The whole worry in the market right now is the beginning of a trade war, so I think it’s a bit of a relief rally.”
Shares of Boeing and Caterpillar finished up 2.5 per cent and 3.4 per cent respectively. The companies have been hit hard in recent weeks by tariff news. Before last week’s trade talk, both companies were waylaid by another proposal to slap tariffs on imported steel and aluminum, two materials that both companies are heavily dependent on, and two commodities where the U.S. consumes far more than it produces.
But the issue is still very murky. China’s new economy czar, Vice Premier Liu He, told U.S. Treasury Secretary Steven Mnuchin in a phone call that Beijing was ready to defend itself in an escalating tariff dispute.
“Markets are caught in conflicting currents. The trade tensions imperil growth,” said Michael McCarthy of CMC Markets in a report.
“Despite an extensive stream of tweets over the weekend President Trump declined to mention trade matters. This could be a sign that the threatened barriers are a negotiating position rather than a line in the sand.”
The U.S. dollar fell to its lowest in five weeks against a basket of major currencies as its safe haven appeal started to wane as investors bet on riskier assets.
In Toronto, the S&P/TSX Composite Index rose 0.5 per cent to 15,298 points. It lost three per cent last week.