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Xi Calms Jitters Over US-China Trade Row

China will take measures to sharply widen market access for foreign investors, raise the foreign ownership limit in the automobile sector and protect intellectual property of foreign firms
President Xi Jinping, speaking at the Boao Forum for Asia in Hainan province, China, on Tuesday.President Xi Jinping, speaking at the Boao Forum for Asia in Hainan province, China, on Tuesday.

US stock futures rallied, Asian equities bounced and the safe haven yen fell on Tuesday, as Chinese President Xi Jinping promised to lower import tariffs on products including cars, helping soothe investor jitters over an escalating US-China trade row.

Xi, speaking at the Boao Forum for Asia in Hainan province, said that China will take measures to sharply widen market access for foreign investors, raise the foreign ownership limit in the automobile sector and protect intellectual property of foreign firms, Reuters reported.

Xi’s comments prompted a rapid and largely positive reaction in financial markets, which have been rattled over the past week on fears the tit-for-tat US-China tariffs will explode into a full-scale trade war in a blow to global growth.

“His comments seem to have covered all the major issues the US has raised, including intellectual property and liberalization of domestic markets,” said Yoshinori Shigemi, global market strategist for JPMorgan Asset Management in Tokyo. “Xi threw the ball into the US court but it appears China is laying the groundwork to achieve an agreement with the US.”

In the stock market, US S&P 500 E-mini futures ESc1 rose 1.2% ESc1, while China's Shanghai Composite Index gained 0.5%.

Financial spreadbetters expect London’s FTSE to open 46 points up at 7,240, Frankfurt’s DAX to open 109 points higher at 12,371 and Paris’ CAC to open 47 points firmer at 5,311. The MSCI’s broadest index of Asia-Pacific shares outside Japan recovered from early losses and advanced 0.8%.

The Dow Jones Industrial Average rose 46.34 points, or 0.19%, to 23,979.1, the S&P 500 gained 8.69 points, or 0.33%, to 2,613.16 and the Nasdaq Composite added 35.23 points, or 0.51%, to 6,950.34. The pan-European FTSEurofirst 300 index rose 0.17% and MSCI’s gauge of stocks across the globe gained 0.37%.

Emerging market stocks rose 0.09%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.84% higher, while Japan’s Nikkei rose 0.51%.

“By and large it appears that the speech is more conciliatory than it is pugilistic with respect to how their approach to the US is,” said Vishnu Varathan, head of economics and strategy for Mizuho Bank in Singapore. “At the end of the day the sense is that the political incentives will be for both parties to get to the negotiation table.”

Japan's Nikkei share average rose 0.8%, helped by a jump in the transportation sector. Toyota Motor Corp and Honda Motor Co, which have operations in China, rallied 2% and 3%, respectively.

Hopes that the trade dispute between the world’s two-largest economies may be resolved without greater damage to the global economy gave a lift to oil markets, with Brent crude futures rising 0.5%.

Earlier Russian stock indexes and the ruble both fell sharply after the United States hit Russian companies and officials with new financial sanctions to punish Moscow for a range of activities, including alleged meddling in the 2016 US election.

The dollar-denominated RTS stock market index slid 11.4%, its largest single-day drop since December 2014, while the ruble was 4.2% weaker against the dollar, the biggest such move since January 2015.

Currencies, Assets

As risk sentiment improved, the safe haven currencies and assets retreated. US 10-year Treasuries fell, pushing their yields up 2 basis points to 2.806%. Gold eased 0.3%.

The safe-haven yen fell broadly, helping the dollar rise 0.3% to 107.16 yen. The Australian dollar set a three-week high at 82.94 yen. Against the US dollar, the Australian dollar gained 0.4% to $0.773, while sterling last traded at $1.4126, down 0.02% on the day.

China is Australia’s top export market and the aussie is often used as a liquid proxy by investors expressing views on the country’s outlook.

“President Xi has ignited a rally in risk assets that might have some legs if the US can keep a lid on the protectionist rhetoric for a while,” said Sean Callow, FX strategist for Westpac in Sydney.

US crude rose 1.98% to $63.29 per barrel and Brent was last at $68.55, up 2.15% on the day.

US Treasury debt prices were little changed ahead of another set of large auctions this week. The US Treasury is set to auction $30 billion in US 3-year notes on Tuesday, $21 billion in reopened 10-year notes on Wednesday, and $13 billion in reopened 30-year bonds on Thursday.

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