Tuesday, 22 May 2018

Markets rise after Mnuchin declares “trade war on hold”, Goldman says interest rates not a problem

Markets rose on Monday.

The S&P 500 rose 0.7 percent, the STOXX Europe 600 rose 0.3 percent and the Nikkei 225 rose 0.3 percent.

Markets were boosted after US Treasury Secretary Steven Mnuchin said over the weekend that the US would delay implementation of tariffs on Chinese goods and “put the trade war on hold” while working out details of a deal between the countries.

Then on Monday, Mnuchin told CNBC that he is “very bullish on stocks”.

“We are well on our way to 3 percent or higher sustained growth,” he said.

While higher growth could put upward pressure on interest rates, the US 10-year Treasury yield was muted on Monday, hovering just above 3 percent.

Goldman Sachs thinks that interest rates are not yet a problem for stocks.

“We expect negative valuation changes if the level of rates approaches 4%, or if the monthly pace of increase exceeds 1 standard deviation (currently 20 bp),” it said in a note.

Goldman economists currently expect the 10-year Treasury yield to hit 3.6 percent by the end of 2019.

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