Global markets are surging after reports Trump is ready to back down in his trade war with China

  • News of potential trade breakthrough between the United States and China has sent stocks across Asia and Europe sharply higher, while U.S. futures are rallying.

  • China’s benchmark Shanghai Composite Index had jumped 2.7%, Hong Kong's Hang Seng is up even more.

  • The rally has extended into Europe, with major indexes gaining more than 1% in the first hour of trade. It looks set to continue when US markets open as well, with Dow futures pointing to a 0.9% rise at the open.

  • The news follows a series of positive remarks offered by Donald Trump and Xi Jinping in relation to trade negotiations on Thursday.

  • You can follow what's going on in global stock markets at Markets Insider.

Stocks around the world are rallying sharply on Friday after reports of a potential trade breakthrough between the United States and China was a catalyst to counter the brutal sell-off which characterised markets in October.

According to Bloomberg, US President Donald Trump has asked key officials to begin drafting potential terms of a trade agreement with China, saying Trump is interested in reaching an agreement on trade with Chinese President Xi Jinping at the G20 summit in Argentina at the end of the month.

On top of an apparent easing in trade tensions on Thursday, the news has been welcomed by investors across the region, especially in China — which has so far this year seen its major indexes lose 30% or more of their value. October was especially brutal in stock markets — after a string of sharp sell-offs, last month was the worst month on for the S&P 500 in seven years.

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"The trade war has been partly to blame for the recent equities rout, so any signs that the two powers are making progress will encourage investors to put risk back on the table and pick up stocks at bargain levels," Jasper Lawler, head of research at London Capital Group said in an email.

Friday's rebound saw the benchmark Shanghai Composite Index soar 2.7%, while the Hang Seng in Hong Kong has jumped by an even larger 4.2%.

Those gains have continued into the European morning, with stocks across the continent rallying, and looking set for a major gain over the week, as indexes bounce back from the October horror show. By 8.45 a.m. GMT (4.45 a.m. ET), major indexes in continental Europe are broadly higher by more than 1%, with the Euro Stoxx 50 index jumping 1.1%.

The only country missing out on Friday's bounce is the UK, with the FTSE 100 lagging behind on the back of a major rally in the pound on Thursday. When the pound rises, the FTSE tends to fall as the majority of companies on the index denominate their earnings in dollars, so a stronger pound is a negative for them.

With Europe bouncing, it also appears that markets in the US are ready to rebound. Futures point to all three major US indexes opening higher later on Friday, with the Dow Jones pointing to a 0.85% gain at the open.

US stocks could get a further boost when the latest data on non-farm payrolls is released at 8:30 a.m. in Washington (12.30 p.m. in London).

Job growth likely rebounded in October, with wages expected to gain the most in 9-1/2 years, pointing to further labor market tightening that could encourage the Federal Reserve to raise interest rates again in December. Economists predict that the unemployment rate is expected to stay at a 49-year low of 3.7%, while payrolls probably increased by 190,000 jobs

Analysts urged caution, however.

"This remains a fragile situation, but it appears to have turned a corner, providing a floor to the recent equity selloff," Lawler said. "Whilst talks are on a positive note we don’t expect to see a repeat of those extreme bouts of selling that we saw across October."

News of Trump asking officials to draft new trade terms came shortly after the president tweeted that he had a "long and very good conversation with President Xi Jinping of China."

"We talked about many subjects, with a heavy emphasis on Trade. Those discussions are moving along nicely with meetings being scheduled at the G-20 in Argentina," he said.

According to Chinese state media, Xi Jinping also said on Thursday that he hopes "China and the United States will be able to promote a steady and healthy relationship."

"The two countries’ trade teams should strengthen contact and conduct consultations on issues of concern to both sides, and promote a plan that both can accept to reach a consensus on the China-US trade issue," Xi said, according to CCTV state television.

Business Insider Australia's David Scutt contributed reporting.

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