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Imminent trade deal lifts sentiment

By Michael McCarthy (chief market strategist, CMC Markets and Stockbroking)

Investor sentiment lifted again overnight ahead of the signing of the first phase of a new trade agreement between China and the US on Wednesday. Details of intended US concessions gave confidence. Shares and other growth assets rose, and US indices hit new record levels. Oil bucked the trend as Middle East tensions eased, and the British Pound fell after weaker GDP growth in November increased the chance of an interest rate cut next week.

The US has agreed to lift its designation of a China as a currency manipulator. The imposition of this tag in August derailed trade discussions, and is a symbolic but important step. Tech shares benefitted, and the Nasdaq tripled the daily gain in the Dow.

Easing Iranian tension broke the usual inverse correlation between gold and oil, and both fell. Cryptocurrencies were caught in the downdraft. Despite the better outlook European investors remain cautious and continental indices edged lower. The UK 100 index defied the mood as investors priced a potentially lower interest rate environment.

Asia Pacific investors are looking at a mixed trading day. Futures indicate gains for most markets. The Australia 200 index erased yesterday’s losses at this morning’s open.

If the trade agreement is signed investor focus will likely shift to company earnings reports.US financial stocks will lead, with Citigroup, JP Morgan and Wells Fargo unveiling quarterly reports tonight.

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