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Dow Futures Gain as Investors Cheer U.S.-China Trade Deal; U.K. stocks roar on Johnson Victory

Wall Street looks to test more record highs Monday as investors cheer last week's US-China trade deal, but questions linger as Beijing remains quiet on the fate of the breakthrough agreement.

The Monday Market Minute

  • Global stocks extend cautious gains following Friday's U.S.-China trade agreement, with advances capped by ongoing economic weakness in Europe.
  • USTR Lighthizer says trade deal with Beijing "totally done" and will include $200 billion in China purchases in exchange for certain tariffs reductions.
  • Britain's FTSE 100 on pace for best day in three years as Prime Minister Boris Johnson's resounding election victory looks to end Brexit drama.
  • Oil prices edge higher on U.S.-China trade hopes, pushing domestic crude prices past the $60 per barrel mark.
  • Wall Street futures look to test fresh record highs ahead of November PMI data at 09:45 am Eastern time .

U.S. equity futures edge higher Monday, while global stocks booked modestly gains in markets around the world, as investors gave cautious approval to Friday's U.S-China trade agreement.

U.S. Trade Representative Robert Lighthizer told CBS' Face The Nation Sunday that the deal, agreed after more than two years of negotiations between the world's two biggest economies, was "totally done", while Treasury Secretary Steven Mnuchin said the agreement would be signed in early January. 

The text is expected to include the suspension of certain tariffs and the rollback of others in exchange for China's agreement to buy around $200 billion worth of American-made goods, including agricultural, energy and manufacturing products, over the next two years. 

China was also said to agree to crack down on key U.S. issues such as intellectual property theft and forced technology transfers as well as work to deepen access to its financial markets.

"Ultimately, whether this whole agreement works is going to be determined by who's making the decisions in China, not in the United States," Lighthizer said. "If the hard-liners are making the decisions we're going to get one outcome, if the reformers are making the decisions - which is what we hope - then we're going to get another outcome."

Global investors were relieved the the December 15 tariffs, which would have applied to $160 billion in China-made goods, were suspended under terms of the agreement, but remained cautious over the fate of the deal given the lack of official text and China's reluctance to officially praise it.

Still, U.S. equity futures are looking to modest opening bell gains Monday, helped in part by both trade optimism and last week's resounding win for business-friendly Prime Minister Boris Johnson in last week's U.K. elections, although gains were limited by European data showing further manufacturing sector weakness in the region's biggest economies.

Contracts tied to the Dow Jones Industrial Average, which touched a record high 28,290.73 points on Friday, are priced for a 97 point gain at the start of trading today, while those linked to the S&P 500, which has gained more than 26.4% so far this year, is set for a 19 point bump to the upside.

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Dow futures were held back, however, by a sharp pre-market decline for Boeing Co  (BA) - Get The Boeing Company Report, which fell 3.5%, taking 80 points from the index, ahead of a board meeting today in Chicago that could result in the delay -- or the outright halt -- of production of the grounded 737 MAX jet.

European stocks, however, booked solid early gains despite the PMI activity data weakness, which indicated further contraction in the manufacturing sector and only modest improvements in services, while Britain's FTSE 100 roared higher following Johnson's emphatic win in last week's general election.

The Stoxx 600 benchmark was seen 1.26% higher by mid-afternoon trading in Frankfurt, paced by a 0.75% gain for the trade-focused DAX index in German, as the euro held its ground against the dollar at 1.1139.

 “The Eurozone economy closes out 2019 mired in its worst spell since 2013, with businesses struggling against the headwinds of near-stagnant demand and gloomy prospects for the year ahead," said IHS Markit economist Chris Williamson. “The economy has been stuck in crawler gear for fourth straight months, with the PMI indicative of GDP growing at a quarterly rate of just 0.1%." 

In London, the FTSE 100 surged 2.34%, on pace for its best gain since the June 2016 EU referendum, as investors piled back into U.K. stocks in the hope that Johnson's electoral victory has ended the nation's three-year plus Brexit drama. 

The pound, as well, rose to a near two-year high of 1.3338 against the greenback, which itself was marked marginally lower against a basket of its global peers as risk sentiment improved following Friday's tentative trade agreement.

Overnight in Asia, the Nikkei 225 slipped 0.29% on the session as the yen gained in cautious regional trading, while the MSCI ex-Japan benchmark rose 0.07% as China stocks rallied modestly into the close of trading. 

Global oil prices were also cautiously higher, with gains linked to trade expectations and the potential for deeper Chinese purchases of U.S. crude.

Brent crude contracts for February delivery, the global benchmark, were seen 25 cents higher from their Friday close and trading at $65.47 per barrel, while WTI contracts for January delivery were marked 6 cents  higher at $60.13 per barrel.