US-China reach deal; GBP pares early gains but remains higher

Summary:

• Phase one trade deal reached

• Existing 15% levies will be halved but 25% tariffs remain

• Risk-on move at first but then pares 

• GBP pares early election gains but remains firmly higher 

After some concern earlier today it does now appear that the US and China have made a significant breakthrough in their frosty trade tensions in news that initially sparked a broad risk-on move in the markets, although this has faded somewhat subsequently. Both sides have agreed to a Phase One Deal which means no additional tariffs will be placed on Chinese imports although the 25% tariffs will remain in place but the 15% levies cut in half. 

The US500 earlier hit a new record high of 3185 but has since fallen back and trades around 25 points from that peak at the time of writing. It’s been a topsy turvy day for Gold which on balance hasn’t really gone too far while the EURUSD has moved back to the levels seen before the spike higher on last nght’s UK election result. 

What had been billed as a close thing turned out to be anything but as the UK election saw a decisive victory for the Conservatives and their leader Boris Johnson who has now delivered the biggest majority for the party since the 1980s. Given what the polls showed leading up to the vote the outcome had effectively boiled down to a binary result of either a Conservative majority or a hung parliament and as soon as the exit polls were released, just after voting closed at 10PM, it quickly became clear that barring an unprecedented swing this would be a big victory for the Conservatives.   

GBPUSD jumped sharply on the exit poll, surging over 340 pips in less than an hour from the release. Since then the market has pared back a little but still remains firmly higher on the day and trading above the $1.33 handle. 

Overall the stock market has reacted well to the result with shares in banks, house building firms and utility companies amongst the best performers. The top 3 places in the blue-chip index are occupied by housebuilders with Taylor Wimpey, Berkeley Group and Barratt Developments all sitting on double-digit gains. RBS, Barclays and Lloyds Banking Group are not too far behind with all these firms showing similar moves to those seen back in October when the pound also soared as Boris Johnson brought his new deal back from the EU.