Just as Trump sent stocks into a tailspin last week with his bellicose trade overtures against China, so the near record (point) rebound in the Dow on Monday is being attributed to a much more diplomatic tone out of the Trump administration, when first Mnuchin, then Peter Navarro played down the threat of a trade war and instead said that the administration is “actively” involved in talks with China to resolve the recent trade tensions between the two nations. Various unconfirmed media reports then also suggested that trade war with China may never materialize (of course, as Mark Cudmore explained this morning, it very well still may). It culminated with a “happy” tweet from Trump himself on Monday night, in which the stock-picking president, hours after confirming his delight with the spike in the market, tweeted “trade talks going on with numerous countries that, for many years, have not treated the United States fairly. In the end, all will be happy!

Trade talks going on with numerous countries that, for many years, have not treated the United States fairly. In the end, all will be happy!

— Donald J. Trump (@realDonaldTrump) March 27, 2018

And so, just like yesterday morning, this morning global markets and US equity futures are a sea of green, which once again is being attributed to fading chances of an “all-out global trade war.”

The fresh surge in risk appetite emerged as the Trump administration was said to be urging China to lower tariffs on cars and open its market to U.S. financial services as part of talks to resolve trade tensions. Treasury Secretary Steven Mnuchin and his Chinese counterpart have been discussing the trade deficit between the two countries and were committed to finding a mutually agreeable way to reduce the gap and help China avoid tariffs on $50 billion of exports to the U.S. Ironically, after yesterday’s upside rout, US and global stocks are almost unchanged since March 1, with the bulk of assets since March 1 now positive.

Only, unlike yesterday when the dollar was tumbling, serving as a key component of the risk-on narrative, today the USD has rebounded and erased almost all of yesterday’s losses. At the same time, the euro weakened as economic confidence in the region continued to slide in March.

“Our base case is that there won’t be an all-out trade war,” Aberdeen Standard Investments’ global head of fixed income, Craig MacDonald, told Bloomberg. “It’s a way of applying pressure to get some wins by Trump.” Still, it will lead to more volatility, MacDonald added. “Our sense is that they will get some wins rather than all-out war, but it’s not something you can just dismiss. The tail risk is higher.”

Meanwhile in the aftermath of yesterday’s massive US rally, the euphoria was everywhere, as European shares headed for their first gain in five sessions, with the Stoxx 600 Index jumping the most in six weeks, up 1.4% and joining the global relief rally seen between US and Asia overnight as, what else, “trade tensions ease.”  19 out of 19 Stoxx 600 sectors rise; technology sector has the biggest volume at 111% of its 30-day average; 584 Stoxx 600 members gain, 7 decline. In terms of sector specifics, materials (+2.0%) are the outperformers, enjoying a strong rebound from yesterday’s losses. Looking at individual movers, Casino (+3.4%) spiked at the open after its Monoprix chain has agreed to sell products on Amazon, GSK (+6.0%) is a top performer in the FTSE 100 after it announced to purchase a 36.5% stake in Novartis’ healthcare unit for USD 13bln.

Earlier in Asia shares were green across the board, with Japan’s Topix Index jumping the most since November 2016. South Korea’s won was the best performer among major currencies as Kim Jong Un was said to be making an unannounced visit to Beijing, his first known trip outside North Korea since taking power in 2011. The ASX 200 (+0.7%) and Nikkei 225 (+2.7%) were higher with mining names and financials leading Australia, while the Japanese benchmark outperformed as the index coat-tailed on gains in USD/JPY and following the testimony by former tax office chief Sagawa who declared there were no instructions made by PM Abe or his close circle to alter the documents related to the land sale scandal.

Specifically, Japan’s former tax agency chief Sagawa said there was no report to the PM’s office of documents being altered and added that there were no instructions from PM Abe, his wife, Finance Minister Aso or their aides to doctor the documents. In related news, there were also comments from Finance Minister Aso that PM Abe’s office was not involved with document alterations in the controversial land sale.

Mainland China and Hong Kong shares advance along with other equity markets on hopes that talks with the U.S. will resolve trade tensions. Hang Seng Index rises 0.8%; Hang Seng China Enterprises Index adds 0.9%; Shanghai Composite Index closed up 1.1% after weathering some downward pressure in the last hour of trade; it was its first gain in five sessions.

As noted above, in FX, the dollar reversed earlier losses, with demand picking up amid month-end flows as the London session gets under way. EUR/USD rallied briefly in early London trading to a five-week high of 1.2476 on dollar supply and euro demand against crosses, before reversing the move; in the Asian session, the pair had traded in a very narrow range. Sterling led losses in G-10, partly driven by strong demand in euro-pound, and weighed by EUR/GBP bids amid month-end flows supportive of the greenback. The yen slid as much as 0.3% against the dollar after heavy buying in the U.S. currency across the Tokyo fix took the pair to session high of 105.75 as trade tensions between the U.S. and China eased. The Aussie fell with local bond yields as capital flows are redirected back into emerging markets; the South Korean won rallied as much as 1.2% and the onshore Chinese yuan briefly touched the strongest level since the 2015 devaluation before gains were erased Elsewhere, China’s currency touched the highest level in almost three years.

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