By Sara Sjolin, MarketWatch
U.K. stocks ended a volatile trading day with firm gains as investors welcomed U.S. President Donald Trump’s softer tone on Chinese investments in the U.S., which was seen as easing fears of a full-blown trade war.
What are markets doing?
The FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX -0.31% climbed 1.1% to 7,621.69, after trading as low as 7,512.03 during the session.
The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.4103% declined to $1.3136 from $1.3222 late Tuesday in New York.
What is driving the market?
U.K. stocks had swung between small gains and losses early in Wednesday’s session, but were sent sharply higher following reports that the Trump administration has backed away from invoking executive authority to impose a tough crackdown on Chinese investments in the U.S. A senior administration official said Trump will rely on existing laws rather than alternative, harsher measures that were feared to spark a dispute between Washington and Beijing.
Also helping the London benchmark rally were energy companies on the rise as oil prices continued to rally. West Texas Intermediate crude rose 3.4% to $72.92 on Wednesday, trading around its highest level since November 2014, after U.S. supply data showed a larger-than-expected drop in stockpiles.
Stocks had earlier in the day been weighed by fears that tensions between the U.S. and China will escalate into a trade war. Chinese President Xi Jinping on Wednesday warned the country’s provinces and ministries to prepare for a “full-scale” trade war if the U.S. follows through and hits China with a range of tariffs on goods, according to an unconfirmed report from SGH Macro Advisors. The report also said the People’s Bank of China is could stop buying U.S. Treasurys.
Banks were also in focus after the Bank of England’s Financial Policy Committee said U.K. lenders are strong enough to deal with a potential “hard” Brexit when Britain leaves the European Union in March. Banking shares, however, generally fell, with shares of Royal Bank of Scotland PLC , down 1.1%, posting the biggest loss in the sector.
What are strategists saying?
“Firmly strapped into the trade war roller coaster, the markets saw a chunky upswing on Wednesday afternoon as Trump appeared to pull back from the brink (if only on one of the many issues between the U.S. and China)” said Connor Campbell, financial analyst at Spreadex, in a note.
“Initially reported over the weekend as a severe, specific restriction on Chinese firms investing in U.S. tech companies, Trump instead said that he would be expanding the authority of the Committee on Foreign Investment in the United States. And though that likely will involve CFIUS cracking down on certain Chinese investments, the fact that China itself wasn’t solely targeted appears to have sent a wave of relief through the markets,” he added.
Shares of oil giants BP PLC /zigman2/quotes/207305210/composite BP +2.84% and Royal Dutch Shell PLC /zigman2/quotes/204253697/delayed UK:RDSB +1.43% /zigman2/quotes/207682964/composite RDS.B +3.32% rose 3.4% and 2.8%, respectively.
J Sainsbury PLC /zigman2/quotes/206038250/delayed UK:SBRY +3.05% climbed 3.3% after Barclays lifted the supermarkets chain to overweight from equal-weight, according to Dow Jones Newswires.
Bunzl PLC /zigman2/quotes/201880362/delayed UK:BNZL -2.16% dropped 1.3% after the distribution and outsourcing company warned currency headwinds are expected to reduce revenue growth at constant exchange rates by 6%.