US stocks rally amid signs of trade war truce after big-sell-off Friday on escalation

Trump softened his stance, said Chinese officials contacted US trade counterparts overnight and offered to return to the negotiating table

Boeing -
Vice premier Liu He said China willing to resolve dispute through “calm” negotiations

US stocks rebounded on Monday, having plunged Friday after the firing of another round of volleys in the ongoing trade war between the US and China, helped at the start of a new week by signs of a possible truce between the two countries.

The Dow Jones Industrial Average closed almost 270 points, or 1.0% higher at 25,898 on Monday, having dropped over 600 points on Friday. The broader S&P 500 index was up 1.1%, while the tech-laden Nasdaq Composite rose 1.3%.

Friday’s falls came after President Trump responded to news that China would impose new tariffs on the US with a series of tweets in which he said: “We don’t need China and, frankly, would be far better off without them”.

Trump also told US companies on Friday to look for alternatives to doing business with China.

But speaking on the sidelines of the G7 summit of world leaders, held in France at the weekend, President Trump softened his stance and said Chinese officials had contacted their US trade counterparts overnight and offered to return to the negotiating table, Reuters reported today.

The newswire also noted that China’s vice premier Liu He - who has been leading the trade negotiations - said on Monday the country was willing to resolve the trade dispute through “calm” negotiations and is resolutely opposed the escalation of the conflict.

Praise for President Xi

Days after referring to China’s President Xi Jinping as an enemy, President Trump went on to heap praise on his Chinese counterpart, Reuters added.

“They want calm, and that’s a great thing, frankly. And one of the reasons that he’s a great leader, President Xi, and one of the reasons that China’s a great country is they understand how life works,” Trump was quoted as saying by the newswire.

The conciliatory comments come after Trump announced an additional duty on some $550 billion of targeted Chinese goods on Friday, hours after China unveiled retaliatory tariffs on $75 billion worth of US goods.

The ongoing trade war has damaged global growth and raised market fears the world economy will tip into recession.

Durable goods orders dull

Data on Monday from the US Commerce Department showed new orders for durable goods rose only modestly in July, while shipments fell by the most in nearly three years, pointing to continued weakness in business investment and a slowdown in economic growth early in the third quarter.

Ian Shepherdson, chief economist at Pantheon Macroeconomics commented: “July durable goods orders jumped 2.1%, above the consensus, 1.3%, but orders ex-transport fell 0.4%, below the consensus, 0.0%.  Orders for non-defense capital goods rose 0.4%, but the net revision was -0.6%.”

“The headline was boosted by a rebound in orders for Boeing aircraft, but core orders remains sluggish. Orders for non-defense capital equipment ex-aircraft rose a modest 0.4% m/m but dipped below their year-ago level for the first time since October 2016. This time last year, core capex orders were rising by about 8% y/y.  The July y/y decline was only 0.5%, though, and the underlying trend seems more flat that down, for now,” he added

The economist concluded: “Capital goods orders continue to outperform relative to the ISM survey, suggesting that non-manufacturing firms are more willing to spend than their industrial counterparts, but it’s far from clear that this can persist in an environment of such uncertainty over tariffs, especially on consumer goods.”

The Federal Reserve lowered US short-term interest rates by 25 basis points last month for the first time since 2008, citing trade tensions and slowing global growth and financial markets have fully priced in another quarter point cut at the Fed’s September 17-18 policy meeting.

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