European Stocks’ Happy Monday Almost Looks Too Good To Be True

(Bloomberg) -- A trade truce, oil jump and an Italian compromise? If it all seems too good to be true, it might be.

But let’s try to enjoy this for now. The Stoxx Europe 600 surged as much as 2.1 percent, the biggest jump since April. Predictably, cyclicals are leading the party.

The biggest catalyst came out of the G-20 summit in Argentina, where the U.S. and China agreed to postpone a planned U.S. tariff hike on Chinese goods for three months. It’s a truce, not a peace treaty, and the deal means we’ll still be talking about trade for the months to come. Chronic underperformers of the year -- carmakers -- got an extra boost when President Donald Trump tweeted that China will “reduce and remove” tariffs -- which Beijing has yet to confirm.

“The meeting managed to avert a significant escalation that could have deepened the recent sell-off in global equities,” Mark Haefele, global chief investment officer at UBS Wealth Management, wrote in a note. “The rivalry between the U.S. and China will not be easily overcome, especially over the issue of intellectual property and market access. A breakdown of talks will remain a risk for markets and the global economy.”

Meanwhile, the energy sector rebounded as oil climbed on Canada’s supply cut and an extended pact between Saudi Arabia and Russia to manage the market. Italy’s FTSE MIB Index is outperforming a little, on reports the country’s populist leaders are ready to back down from their budget deficit targets.

“Happy Monday” is usually uttered as an ironic greeting, but today is looking genuinely uplifting:

  • Basic resources surged 4.8 percent, the most on an intraday basis since July
  • Autos jumped 4.2 percent, the most in a month
  • Technology is up 3 percent, the most since mid-October
  • Chemicals rose 2.1 percent, the most since Oct. 31

Less happily, protests in France have turned into riots, and another Brexit battle is brewing. The euro area’s manufacturing Purchasing Managers’ Index reading fell last month, though it at least was better than the flash estimate.

The trade detente sets us up for a Santa rally, but definitely not for a smooth 2019. So have fun for now.

©2018 Bloomberg L.P.