Dow futures surge more than 400 points after Trump and Xi agree to pause the US-China trade war

U.S. stock market futures surged after U.S. President Donald Trump and Chinese President Xi Jinping agreed to a truce on the trade war that has weighed heavily on global equity markets for most of 2018.

Futures on the Dow Jones Industrial Average jumped 463 points as of 6:30 p.m. New York time. S&P 500 futures added 1.7 percent, while futures on the Nasdaq-100, home of many technology companies which sell to China, jumped nearly 2 percent.

Futures on oil and copper jumped on hopes a possible new China-U.S. trade agreement would boost global economic growth.

The two leaders, who met for dinner on Saturday at the G-20 summit in Argentina, agreed to hold off on additional tariffs on each other’s goods at the start of the new year to allow for talks to continue. The U.S. agreed to leave tariffs on more than $ 200 billion worth of Chinese products at 10 percent. If after 90 days the two countries are unable to reach an agreement, that rate will be raised to 25 percent, according to the White House. Trade negotiations will address forced technology transfer and intellectual property.

“The explicit delay in tariffs is on the positive end of expectations,” said Helen Qiao, China and Asia economist with Bank of America Lynch, in a note to clients. “In contrast to the fear — especially in Asia —that the hawks in US administration would make impossible demands, evidence of President Trump working towards a trade deal with China has emerged.”

China agreed in Argentina to purchase a “substantial” but not-yet-determined amount of agricultural, energy industrial and other U.S. products to reduce the trade balance between the two, according to the White House. China has put tariffs on $ 110 billion in U.S. goods.

“Obviously there is a long way to go here, but the pattern of previous [Trump] deals is playing out,” Qiao added.

The Dow rallied more than 5 percent last week in anticipation of a trade truce over the weekend between Xi and Trump. Shares of Caterpillar and Boeing, two companies with a lot riding on free trade with China, led the gains into the weekend. The S&P 500 jumped 4.9 percent last week and is now up 3 percent for 2018. Fear of a full-blown trade war between the two countries helped send the benchmark into correction territory and into the red for the year last month.

“This is all constructive news for markets, however the overarching concerns in the US-China relationship remain, and thus should imply caution for markets past the short-term,” wrote Sacha Tihanyi, deputy head of emerging markets for TD Securities, in a note. Some of the bigger, structural “issues are not ones that we believe can be easily tackled in a 90-day period.”

— With reporting by Michael Bloom, Kevin Breuninger and Javier David

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