World stocks inched ahead to a record high on Thursday after the United States and China signed an initial deal to defuse their 18-month trade war, though financial markets were wary as a number of thorny issues remained unresolved
MSCI’s broadest index of world stocks firmed 0.04% in early trade after closing at record level on Wednesday while its index on Asia-Pacific shares outside Japan rose 0.21%.
Japan’s Nikkei rose 0.14% while mainland China’s Shanghai composite index was almost flat.
U.S. President Donald Trump and Chinese Vice Premier Liu He on Wednesday signed a deal that will roll back some tariffs and see China boost purchases of U.S. goods and services by $200 billion over two years.
“Whether somebody looks at this as big progress or little progress, it is something tangible and so the arrow is pointing in a direction that the market is comfortable with,” said Chuck Carlson, chief executive officer of Horizon Investment Services at Hammond, Indiana in the United States.
The Phase 1 deal however does not fully eliminate the tariffs while the $200 billion purchase targets, which include energy, farm and manufacturing products, look daunting to achieve.
Nor does it address structural economic issues that led to the trade conflict. Officials say these will be dealt in Phase 2 negotiations, though the differences there are so fundamental that many investors doubt any deal will come through.
“While markets seemed to take this deal as a risk-on signal, we should all be aware that headlines about trade, particularly U.S. China trade, are going to be a constant feature of 2020,” said Hannah Anderson, Global Markets Strategist, J.P. Morgan Asset Management in Hong Kong.
“Highly sensitive issues like the U.S.’s export ban to several Chinese companies, increased scrutiny on Chinese investments abroad, and China’s application of its commitment to treat foreign and domestic business alike within China are likely to make headlines throughout the year,” she said.
On the Wall Street, the S&P 500 closed at a record high of 3,289.3 points, up 0.19%, with gains fairly small after the market has rallied for months on hopes of a deal.
The index was dragged down by fall in financial shares following lacklustre earnings from Bank of America and Goldman Sachs.
“While the trade deal has provided a relief, there wasn’t any positive surprises for markets. For shares to rise further, we need more evidences of improvement in the real economy and earnings,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
Bond yields dropped as a boost from the trade deal failed to offset pressure from low U.S. producer price inflation data, which highlighted persistently low inflationary pressure.
The price index rose less than expected in December to cap 2019 with rise of 1.3%, lowest since 2015.
The 10-year U.S. Treasuries yield slipped to one-week low of 1.780% compared with a high of 1.900% last Thursday and last stood at 1.793%.
Weak inflation was evident also in UK where consumer price inflation slowed to 1.3%, its slowest rate in three years.
The data fanned bets the Bank of England will cut interest rates at the end of this month, pushing the 10-year gilts yield to 2 1/2-month low of 0.630%.
The British pound last traded at $1.3040, having managed to recover a tad from its three-week low touched earlier this week.