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Futures trading points to a positive start to the Australian session despite an underwhelming American reaction to the long-awaited phase-one trade deal with China.

The ASX SPI200 rallied 39 points or 0.6 per cent to 6782 amid hopes for improved demand for Australian raw materials after the US agreed to wind back tariffs on Chinese imports. Mining giants BHP and Rio Tinto rose in US trade.

Wall Street had already factored in some sort of deal and closed barely changed as market analysts questioned whether there was enough substance in the deal to justify the hype. The S&P 500 and Dow both hit records early in the session before closing just 0.01 per cent higher. The Nasdaq managed a more substantial gain of 18 points or 0.2 per cent.

The ‘phase one’ agreement announced on Friday suspends US tariffs on $US160 billion worth of Chinese that were due to come into force yesterday, and slashes some existing tariffs by half to 7.5 per cent. In exchange, China has agreed to buy an unspecified amount of US farm produce, and change its approach to forced technology transfers, intellectual property, currency manipulation and foreign access to financial services. Negotiations for a ‘phase two’ deal will start immediately, according to US President Donald Trump.

Over the weekend, US Trade Representative Robert Lighthizer defended the deal against criticism it lacks detail and enforcement mechanism and has not yet been signed. Lighthizer said the deal was “totally done” and will double US exports to China in two years. A date for signing was under discussion.   

Friday’s final tally on the major indices would have been worse without a 1.36 per cent rise in index heavyweight Apple. The tech giant stood to take a heavy hit from yesterday’s suspended tariffs. Other trade bellwethers, including Caterpillar and Boeing, declined.

Also boosting market sentiment was the return of Boris Johnson’s pro-Brexit Conservative Party in the UK general election on Thursday. Britain’s FTSE 100 surged 1.1 per cent as the landslide victory cleared the path towards Britain’s exit from the European Union.

The ASX 200 rose 31 points or 0.5 per cent on Friday on news of the trade breakthrough, but trailled regional rises of 2.55 per cent in Japan, 2.57 per cent in Hong Kong and 1.78 per cent in China. The dollar jumped as high as 69.38 US cents and was this morning trading at 68.85 US cents.

The big two miners rallied strongly here on Friday, but traded mixed in overseas action. BHP’s UK-listed stock shed 0.31 per cent, but the improved mood in the US saw its listing there rise 0.78 per cent. Rio Tinto lost 0.66 per cent in the UK and gained 0.35 per cent in the UK. The iron ore spot price improved 65 cents or 0.7 per cent to $US94.45 a dry ton.

Oil hit a three-month high amid hopes the trade deal removed a major headwind for global demand. Brent crude advanced $1.02 or 1.6 per cent to $US65.22 a barrel.   

A strengthening US dollar weighed on dollar-denominated industrial metals. Benchmark copper on the London Metal Exchange declined 0.4 per cent, aluminium 0.3 per cent, lead 1.7 per cent, tin 0.2 per cent and zinc 0.5 per cent. Nickel improved 0.5 per cent.

Gold settled higher in a sign that traders harbour doubts over the lack of detail in the US-China trade deal. Gold for February delivery rose $8.90 or 0.6 per cent to $US1,481.20 an ounce.

A busy day ahead includes the federal government’s mid-year budget review, flash manufacturing and services PMIs and updates on Chinese industrial production and retail sales. Manufacturing and services reports are also due tonight in Europe and the US.

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