TORONTO — Canada's main stock index rallied Friday to end a second strong week on growing signals of a potential resolution in the trade dispute between the world's two largest economies.
North American markets reacted positively Friday to reports that China has offered to eliminate the annual U.S. trade deficit by 2024 by gradually increasing U.S. imports. That came a day after U.S. Treasury Secretary Steven Mnuchin reportedly floated the idea of easing tariffs on Chinese goods during trade negotiations.
"Markets are definitely bullish on this whole trade resolution," said Noman Ali, a senior portfolio manager with Manulife Asset Management.
In addition to potentially eliminating the threat of another 25 per cent tariff on Chinese imports, a trade deal between the U.S. and China would remove a threat to global economic growth.
"We don't know the authenticity of that (offer) and whether it's real or not but it's moving the market," he said in an interview.
The S&P/TSX composite index closed up for an 11th straight day, gaining 92.61 points to 15,303.83.
The Toronto market rose by 2.4 per cent in the past week, after increasing by 3.55 per cent the prior week. Since losing ground during a difficult autumn, the TSX has added 981 points or 6.8 per cent so far this year.
In addition to trade optimism, the market's recovery has demonstrated that it was oversold late last year, he added.
Cyclical sectors of the Canadian market gained the most Friday, led by technology, health care, financials, energy and industrials. Materials and real estate were down.
The influential energy sector gained 0.75 per cent with the price of crude rising about three per cent to hit a near two-month high. Prices rose on hope that a trade deal will bolster demand and an OPEC report that provided more details about its production-cutting efforts.
"The concern was on the demand side and now with trade issues getting resolved that demand fear is probably getting mitigated," said Ali.
The March crude contract was up US$1.68 at US$54.04 per barrel and the February natural gas contract was up 6.9 cents at US$3.48 per mmBTU.
The Canadian dollar traded at an average of 75.41 cents US compared with an average of 75.22 cents US on Thursday following a pick up in the annual inflation rate in December to two per cent, topping expectations for a reading of 1.7 per cent.
The February gold contract was down US$9.70 at US$1,282.60 an ounce and the March copper contract was up 3.9 cents at US$2.72 a pound.
In New York, the Dow Jones industrial average rose 336.25 points at 24,706.35. The S&P 500 index was up 34.75 points at 2,670.71, while the Nasdaq composite was up 72.76 points at 7,157.23. U.S. markets are closed Monday for Martin Luther King Jr. Day.
Geopolitical issues are currently helping market sentiment but earnings releases and guidance are also lending support that the American economy remains strong.
Ali pointed to U.S. banks that have reported good numbers.
"They're not cutting guidance or slashing guidance or raising any fears of recession or slowdown so those are all positive indicators that suggest that things can continue to improve in the short-term."
Index and currency in this story: (TSX:GSPTSE, TSX:CADUSD=X)
Ross Marowits, The Canadian Press