Welcome back the great risk-on trade as market bulls come charging back on to the ASX after the US and China call a time-out on their growing trade spat.
But the overwhelmingly bullish sentiment on the market today harbours a dark side that poses a threat to a number of ASX stocks.
This risk is easy to overlook today though as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) enjoyed its best gain in nearly two years as the index jumped 1.8% with all sectors trading in the black.
The market rally comes as the risk to a full-blown trade war between the world’s two largest economies eased after US President Donald Trump and his Chinese counterparty Xi Jinping agreed to refrain from slapping fresh tariffs on each other.
Xi is dangling a big carrot in front of Trump if the US agrees to back-off on the trade war. China agreed to buy a “very substantial” amount of energy, agriculture and industrial goods from the US as part of the ceasefire, according to a report in the Australian Financial Review.
Details are scant so it may be too early to quantify what impact the new deal will have on our listed agriculture and energy sectors.
Investors in our oil & gas stocks aren’t worried though as that is the best performing sector on our market today with the Santos Ltd (ASX: STO) share price surging 8.7% to $6.00, Oil Search Limited (ASX: OSH) share price jumping 5.1% to $7.68 and Woodside Petroleum Limited (ASX: WPL) share price improving 3.5% to $32.16.
There also didn’t seem to be many signs of stress among agriculture-related stocks.
The Graincorp Ltd (ASX: GNC) was leading the pack with a near 27% surge to $9.25 on a takeover offer, although the Nufarm Limited (ASX: NUF) share price, A2 Milk Company Ltd (ASX: A2M) share price, Elders Ltd (ASX: ELD) share price and Rural Funds Group (ASX: RFF) share price also enjoyed strong gains today.
But there were some spots of weakness in the sector although it’s hard to say if this has anything to do with the new China-US deal.
Investors will need to pay close attention to the developing bilateral US-Sino trade deal as global peace on the trade front can have a nasty sting in the tail.
It also shouldn’t be lost on investors that Trump’s push to make America first means friends and allies may get pushed off the platform.
With friends like that, who needs enemies?
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Motley Fool contributor Brendon Lau owns shares of Nufarm Limited. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Elders Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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