Market snapshot: stocks price in relief at progress on trade talks

A palpable sense of relief sent markets surging higher in the US, with the benchmark S&P500 all but erasing its losses for the year as a whole.

Indeed, since the April lows at the depth of the tariff trauma, the index has soared by more than 20%, while the technology sector also felt the benefit of renewed investor interest.

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Stocks with a stronger Chinese focus had a whirlwind session which sent the likes of Tesla Inc (NASDAQ:TSLA) and Apple Inc (NASDAQ:AAPL) higher by 6.75% and 6.3% respectively, while Amazon.com Inc (NASDAQ:AMZN) added over 8% and Dell Technologies Inc Ordinary Shares - Class C (NYSE:DELL) just under 8% as the reliance on supply chains from Asia had a welcome reprieve.

The relief extended to other asset classes, with Treasury yields rising as the odds of recession receded, which in turn boosted the beleaguered smaller cap Russell 2000 index, which added more than 3%, reducing its year to date losses to just over 6%. The search for risk-on assets also saw the gold price take a breather, while oil showed some spirit on hopes of renewed demand.

Of course, the developments between the US and China mark a brief hiatus rather than a resolution. Even at the reduced levels, tariffs remain higher than before and it remains to be seen whether the damage which has already been wrought will have longer-term and even permanent implications for the reputation of the US both domestically and indeed globally.

In addition, there are also likely to have been more immediate consequences as consumers may have retrenched and as companies have been hamstrung in making investment decisions based on what has been an extremely murky outlook.

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For the moment, it seems that the depths of tariff despair have passed. The details of any ensuing trade deals are yet to emerge, but a base for the direction of travel appears to be in place. As such, the main indices look rather healthier than has been the case over recent months and in the year to date the Dow Jones and S&P500 are down by just 0.3% and 0.6% respectively, while the decline of 3.1% for the Nasdaq follows a rally of almost 18% since its April lows.

Asian markets, which had already had the opportunity to react to the news the previous day, saw gains which were tempered overnight, with investors still aware of the potential for further swift policy changes from the White House. Even so, there were pockets of hope with the Nikkei 225 rebounding as a read across from the Chinese de-escalation and with a recovery in pharmaceutical stocks adding further support. 

In the UK, attention switched to domestic matters, with a number of economic updates which continue to show a nuanced picture. Retail sales were a highlight with an increase of 7% annually in April, although this was in part due to the timing of Easter and could also have been the result of some purchases being brought forward in view of the potentially dour days to come.

A similar question mark arose as the unemployment rate rose to 4.5% with the number of job vacancies declining. Growth in wages came in at 5.6%, still ahead of inflation but a slower rate, all of which will influence the Bank of England in its decisions as to the speed and depth of any further interest rate cuts in the months ahead.

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The wider market struggled for direction at the open, with a broker upgrade lifting Entain (LSE:ENT) to the top of the risers board, whereas an earnings miss at DCC (LSE:DCC) sent those shares in the opposite direction, despite an increase in shareholder returns largely resulting from the sale of its Healthcare business.

Elsewhere, the more domestically focused FTSE250 continued its recent recovery to regain positive status for the year, now eking out a cumulative 0.2% gain. The premier FTSE100 meanwhile flitted around the flatline, although a gain of 5.3% so far this year and an average dividend yield of 3.5% across the index continue to provide a particular temptation for investors on a total return basis.