Global stocks rally on signs of U.S.-China trade breakthrough

Global markets and stocks kicked off the week on a high note, lifted by growing optimism that the U.S. and China are moving closer to a trade agreement.

Stocks jumped to record levels on Monday after officials from both the U.S. and China cooled tensions over the weekend, setting the groundwork for President Donald Trump and China President Xi Jinping to finalise a trade deal this week.

The Dow Jones Industrial Average gained 258 points, or 0.5%, while the S&P 500 rose 0.9% and the Nasdaq Composite was up 1.4%, boosted by a rise in chip stocks like Nvidia. All three major indexes hit fresh all-time intraday highs during the session.

Treasury Secretary Scott Bessent speaking at the ASEAN Summit in Kuala Lumpur said: “I think we have a very successful framework for the leaders to discuss on Thursday.”

Markets Rally as U.S.–China Edge Toward Trade Truce

The proposed framework includes a delay in China’s rare earths restrictions which led to the most recent trade flare-up, a rise in Trump’s threatened 100% tariffs on China that were to start Nov. 1 and a resumption of Chinese purchases of soybeans. The deal may include a way to resolve the TikTok dispute with the U.S. allowing a U.S. version of the social video app.

Trump said on Monday from Air Force One: “I have a lot of respect for President Xi, and we are going to come away with the deal.”

Chipmakers, which stand to lose the most from tensions with China, supported the rally on Monday. Nvidia went up about 2%, while Broadcom gained around 1% and On Semiconductor increased 3%. Tesla and Apple also added approximately 3% and 1%, respectively. Apple’s market cap is now near to $4 trillion.

Tobin Marcus of Wolf Research said in a note: “Details are still limited, and nothing will be finalised until the Trump-Xi meeting, but a renewed truce now seems near-certain, with China likely fully delaying their rare earth export controls for a year—better than the alternative of an agreement to grant licenses.” He added: “This overall better-than-expected outcome should be bullish for markets this week, assuming the Trump-Xi meeting goes well.”

Strong gains across European stocks

On Monday afternoon, the pan-European Stoxx 600 rose by almost 0.2%, following strong gains across Asian markets. Japan’s Nikkei 225 broke the 50,000 mark for the first time, closing 2.46% higher and South Korea’s Kospi advanced 2.57%.

Most major European stock markets were slightly positive, with the FTSE 100 up about 0.1% on Monday, while Spain’s Ibex 35 Index hit a new 52-week high of 15,956, beating its previous record.

U.S. stocks join the rally

U.S. stocks also followed the rally, with the Dow Jones Industrial Average up 0.6%, the S&P 500 adding 0.9%, and the Nasdaq Composite climbing 1.5% in early trade.

Stocks are coming off a bullish week, with all three major indices hitting record highs last Friday. The Dow Jones Industrial Average closed above 47,000 for the first time, while the S&P 500 reached 6,800 for the first time ever. All three major indices marked their second consecutive week of gains.

Investors are expecting the Federal Reserve to cut interest rates on Wednesday, especially after last week’s inflation data came in slightly below expectations. Big Tech companies’ upcoming earnings reports are also in focus this week, with several “Magnificent 7” companies – including Alphabet, Amazon, Apple, Meta Platforms and Microsoft – set to release their third-quarter results.

Investors were encouraged by improving China-U.S. relations, but a setback with Canada kept their optimism in check. On Saturday, Trump imposed an additional 10% tariff on Canadian imports after Canada failed to remove a TV ad featuring former President Ronald Reagan knocking tariffs quickly enough.

Trade-sensitive sectors and stocks lead gains

While more than half of Europe’s sectors were down Monday morning, industrials, technology and mining stocks — sectors often sensitive to global trade tensions — were among the biggest gainers. The Stoxx Europe 600 Technology Index led the rally with a 1.4% rise, followed by the Stoxx Europe 600 Basic Resources up 0.5% and the Stoxx 600 Industrial Goods & Services index adding 0.3%.

Hopes of a trade truce

Rupert Thompson, chief economist at IBOSS, said Monday’s global rally was mainly driven by the latest trade news, adding that it further boosts the prospects for a longer-lasting truce that could ease tariff hostilities.

“It certainly kicks out into the long grass a sort of big flare-up of trade tensions again,” Thompson told CNBC’s “Squawk Box Europe.”  “Almost certainly, if this does go ahead, it means the trade truce will continue, possibly for longer than a sort of three-month period, which had been the norm so far.”

He added: “Certainly, it means that the favourable tailwinds behind the markets at the moment have got another leg to them.”

Lingering risks and uncertainties

But Thompson also sounded a note of caution, warning that underlying geostrategic tensions between the two countries remain. He pointed out that the president’s plans for 10% tariffs on Canada show that Trump remains “fairly fickle” on trade matters.

Broader market factors at play

Christian Mueller-Glissmann, head of asset allocation research at Goldman Sachs, highlighted broader factors influencing potential growth.

“I’m not sure that this agreement in particular will get things going, but the baseline assumption for next year is things will look a bit more reflationary,” Mueller-Glissmann told CNBC’s “Squawk Box Europe” Monday.

Goldman Sachs’ outlook

Mueller-Glissmann described the bank’s stance as “modestly pro-risk,” looking for upside opportunities while avoiding speculative trades. He added that the current market is built around structural optimism partly supported by greater liquidity. He said that “trapped” liquidity could boost the potential for a late-cycle acceleration, but cautioned that risks still remain.

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