China Stocks gains on U.S.-China trade pact

Mainland China equity market finished session higher on Monday, 16 December 2019, as appetite for riskier assets underpinned on better-than-expected economic data for November and on receding U.S.-China trade war after Washington and Beijing reached their phase one deal Friday and refrained from slapping fresh tariffs on each other's goods on Sunday. At closing bell, the benchmark Shanghai Composite Index inclined 0.56%, or 16.72 points, to 2,984.39. The Shenzhen Composite Index, which tracks stocks on China's second exchange, grew 1.56%, or 25.86 points, to 1,686.41. The blue-chip CSI300 index was up by 0.5%, or 19.33 points, to 3,987.55.

Industrial production, which measures China's industrial output, including manufacturing, mining and utilities, grew by 6.2% in November, up from October's 4.7%. Meanwhile, retail sales grew by 8.0% in November, up from 7.2% a month ago.

The United States and China have reached an historic and enforceable agreement on a Phase One trade deal that requires structural reforms and other changes to China's economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange. The "Phase 1" agreement means that the U.S. won't impose new tariffs on Chinese goods that had been scheduled for Sunday. As part of the deal, the United States will maintain 25% tariffs on $250 billion of Chinese imports while halving tariffs on $120 billion in products to 7.5%.In return, Trump said that the Chinese have agreed to "massive" purchases of American farm and manufactured products as part of the initial deal. The president said a so-called phase-two deal will be discussed immediately rather than after the 2020 presidential election. The two major economies plan to sign the partial accord in the first week of January.

The long-awaited deal could dial down tensions between the United States and China and provide some relief to investors, who have been buffeted for months by worries that a full-blown trade war would pressure global economic growth.

Meanwhile, U.K. Prime Minister Johnson's Conservative Party swept to a landslide victory in elections on Thursday, securing a strong majority in Parliament. The convincing win gives him support to secure a Brexit deal and negotiate a new relationship with the European Union next year. Brexit concerns have been cited as one lingering headwind for global investors.

Selective brokerages performed well, with CSC Financial (601066 CH) hitting the 10% daily up limit, at 27.12 yuan; Huatai Securities (601688 CH) rose 3.2% to 19.13 yuan. Their gains came after China's securities watchdog said it would relax requirements for A-share companies to spin off and separately list their subsidiaries on the domestic exchanges.

Tech stocks also did well, with Foxconn Industrial (601138 CH) rising 1.2% to 19.15 yuan, TCL Corp (000100 CH) climbing 9.9% to 4.33 yuan, and Universal Scientific Industrial (601231 CH) hitting the 10% up limit at 20.08 yuan.

CURRENCY NEWS: China's yuan was up against the dollar after the People's Bank of China (PBOC) set higher mid-point fixing, on news of the trade deal. Prior to market opening, the People's Bank of China (PBOC) lifted its official yuan midpoint CNY=PBOC to 6.9915 per dollar, 241 pips or 0.34% firmer than the previous fix of 7.0156 and the strongest since Aug.6. In the spot market, onshore yuan CNY=CFXS opened at 6.9990 per dollar and was changing hands at 6.9988 at midday, 32 pips firmer than the previous late session close.

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